By Frank Keegan | State Budget Solutions
Vice presidential candidate Wisconsin U.S. Rep. Paul Ryan and New Jersey Gov. Chris Christie put on cheery faces for the faithful this week at the Republic National convention, but both know the catastrophe states are hurtling toward because of hidden debt.
If they want to find out what it takes to deal with fiscal reality, they should check with the Dutch, who are getting ready to cut current civil service retirement benefits and increase contributions to save the pension system.
The Dutch website Vokskrant.nl reported last week that “according to a confidential internal memo” of the national pension fund, “The pensions of 2.8 million working and retired civil servants” will be cut by 15 percent during the next two years.
Required contributions could increase 28.5 percent at the same time. That is what real solutions to fiscal problems look like. Ugly.
The cause there is the same as here: “Since the outbreak of the crisis in late 2007, the risk-free rate decreased from (5) to (2) percent.” Dutch public pensions require a realistic funding level based on a risk-free discount rate.
U.S. public pensions allow delusional funding levels at unachievable discount rates — a policy guaranteeing disaster.
What does any of it have to do with our presidential race? Everything, when the No. 1 issue is doomed entitlement programs, gross immorality and the economic homicide of taxing citizens twice for government services while shifting trillions of dollars in costs onto future generations who will derive no benefit.
If states are laboratories of democracy, the lab results are back and America has fiscal AIDS.
Ryan knows this, because three years ago he ordered the Government Accountability Office study that found — even using official delusional numbers — that “… closing the fiscal gap over the next 50 years would require action to be taken today and maintained for each and every year going forward equivalent to a 12.3 percent reduction in state and local government current expenditures.”
Asked at the time about his fiscal alarm bell in the night, Ryan said only, “it’s interesting.”
The only thing that has happened since, according to a GAO update this year, is that the required real spending reduction — or equivalent tax increases — each year through 2060 has gone up to 12.7 percent a year, despite two years of record state and local tax increases and all the politicians’ claims of “cuts” and “reforms.”
According to GAO, Ryan ordered the original study because:
“State and local governments work in partnership with the federal government to implement numerous intergovernmental programs. Fiscal pressures for state and local governments may exist when spending is expected to outpace revenues for the long term. GAO was asked to examine (1) the long-term fiscal pressures facing state and local governments and historical spending and revenue trends, (2) spending and revenue trends to identify patterns among states, and (3) what is known about the implications of these fiscal pressures for federal policies.”
Bottom line “implications” are that the federal government, which now pays for much of state government and imposes vast rules requiring matching funds, holds state sovereignty in hock.
Whoever sits in the White House and controls Congress has the power to punish and reward states, and governors and legislatures can do nothing about it.
Just look at New Jersey, where Christie’s claim of a “balanced budget” ignores more than $6 billion in required pension payments he failed to make, adding to the growing hidden $145 billion pension debt future taxpayers must pay.
The state with the highest tax burden in the nation also has the fourth highest debt, including $597 million it owes to the federal government for unemployment trust fund loans and billions it borrowed more than a decade ago to fix the pension system.
Christie knows this because one thing none of his many critics ever accused him of is being financially illiterate.
He and Ryan could have used the national spotlight this week to shake America out of delusion and denial.
State and local governments are the first to feel the crushing impact of fiscal reality, because they cannot print money, “twist” bonds or move the decimal point on a computer to defer disaster the way our federal government can — for awhile until inflation and economic collapse balance the books.
That is why the condition of our states is the perfect example for national politicians to use in showing Americans the magnitude of sacrifices we must make to solve the problems we face, whether Social Security, Medicare, Medicaid, corporate welfare or overall deficit spending.
Generalities about hard choices do not pay the bills. Only real cuts and revenue increases applied to existing debt can cure us.
Dutch pension officials secretly crunched the numbers and faced a reality they found “disastrous for the economy.” Somebody leaked the memo. Now politicians there must deal with it.
Despite numerous studies, including the ongoing GAO reports Ryan ordered, our politicians at the local, state and national levels refuse to deal with reality or even tell the American people about it.
Admitting to the problem is the first step toward recovery.
Republicans failed to do it this week in Tampa. Count on Democrats to fail next week in Charlotte.
Frank Keegan is editor of Statebudgetsolutions.org a project of sunshinereview.org. The State Budget Solutions Project is non-partisan, positive, pro-reform, proactive and anchored in fundamental-systemic solutions. The goal is to successfully engage political journalists/bloggers, state officials and opinion leaders in a new way of thinking about state government and budgets, fundamental reforms, transparency and accountability.