MyGovCost News & Blog

Why Government Subsidies Fail


Friday April 29th, 2016   •   Posted by Craig Eyermann at 6:49am PDT   •  

A very cool YouTube video from Burton Folsom on why private investors are so much more successful at realizing technological achievements than are the kinds of schemes that are subsidized by the government:

In addition to being very personally invested in the outcome of their endeavors, there is also a big difference in the skills of the people who work toward great achievements between private investors and government funded one. The kinds of skills it takes to get government subsidies, whether in the form of grants, tax credits or special protection from real world competition, are very different from the kinds of skills that are actually needed to be genuinely successful in business, invention and real life.

A Government Money Pit Grows Wider


Thursday April 28th, 2016   •   Posted by K. Lloyd Billingsley at 5:45am PDT   •  

SacSkyline_MLAs we noted in March, the Sacramento headquarters of the California State Board of Equalization, known among reporters as a “24-story money pit,” sprung two leaks during heavy rains. Floors 10 and 22 both had a history of leaks and other troubles, but these were apparently unaddressed, despite more than 20 reports calling for action. Even those fixes, however, would have been insufficient. In addition to leaky windows, the building features mold, burst pipes, falling glass, a bat infestation, and traces of toxic substances. Over two decades bureaucratic bosses have spent some $60 million on the building, but in 2014 the cost to fix everything was another $30 million – excluding the cost of moving employees during repairs. Now the intrepid Jon Ortiz of the Sacramento Bee shows how the BOE problems have led to even more waste.

The BOE board had their offices on the 23rd floor of the structure, but in 2007 water leaks forced a cleanup of floors 22 and 23, so the board had to leave the building. Jerome Horton, BOE chairman, moved to the ninth floor of the U.S. Bank Tower. Then last fall Horton moved to the 21st floor, which offers a view of the Capitol Mall and full-length glass walls bearing the BOE seal. Horton took the opportunity to redecorate. As Mr. Ortiz notes, he packed the lavish suite with more than $118,000 of designer furniture including 24 white leather chairs, 21 cabinets with glass doors and “top-silver undertrim,” eight metal coat racks. “With delivery and installation of $12,000,” Mr. Ortiz explains, “taxpayers spent slightly more than $130,000 to outfit Horton’s office.” Other board members were much less extravagant but Ortiz finds it unlikely that any of it would have been necessary if the board members still had offices in the BOE headquarters.

The $60 million to fix that building would not have been necessary if the building had been properly constructed. It wasn’t, because politicians were looking the other way, and there’s no recourse because politicians were asleep at the switch, allowing the statute of limitation on defective construction to run out in 2002. Assembly members have considered a new facility costing $500 million, plus the debt on the BOE building, in the range of $70 million. As this disaster confirms, government money pits have a way of getting deeper and wider.

TSA Endures Despite Failure


Monday April 25th, 2016   •   Posted by K. Lloyd Billingsley at 9:56am PDT   •  

TSA Airport_MLOn a recent trip, this writer found that employees of the federal Transportation Security Administration were courteous and professional, but that is not always the case. As we noted, the TSA sometimes forces passengers through the screening process twice on the same trip, before a connecting flight, with no warning and no explanation. So the TSA can also do a bang-up job of making air travel more miserable than it should be. As they take off their shoes and belts, travelers might recall that the TSA is also a miserable failure at its appointed task.

The TSA is part of the Department of Homeland Security but as we noted last year, in tests at dozens of airports, a DHS security team was able get weapons, mock bombs and other items past TSA security. The failure rate was a full 95 percent, but DHS boss Jeh Johnson claimed that the numbers were “out of context” and refused to release the full report because the information was “classified.” That term generally means “embarrassing to the government,” and TSA lapses are nothing new. Since 2004, the DHS has turned up a number of persistent security failures, and at airports such as Atlanta and San Diego, hundreds of TSA employee security badges have gone missing. Also missing were reports of TSA bosses being fired over such lapses, or any second thoughts from politicians about establishing the Transportation Security Administration in the first place.

The TSA, like the DHS, is a bureaucratic response to the problem of terrorism. Despite performance, the federal government generally maintains a policy of no bureaucracy left behind, and bureaucracies are subject to mission creep. As we noted in 2013, the TSA has deployed VIPR – Visible Intermodal Prevention and Response. VIPR squads have rousted people at train stations and other transportation hubs, actions that go beyond the TSA’s original mission of airport screening, and which civil liberties groups said amount to warrantless searches in violation of constitutional protections. No word whether the VIPR squads have succeeded in stopping any terrorist attack, and overall the TSA record on that front is also rather sketchy. So travelers have much to consider, even if TSA screeners manage to be courteous and professional.

Bureaucrats Behaving Badly: HUD Edition!


Monday April 25th, 2016   •   Posted by Craig Eyermann at 7:06am PDT   •  

hudseal_teal_1 The U.S. Department of Housing and Urban Development (HUD) has the mission to “create strong, sustainable, inclusive communities and quality affordable homes for all.” To do that, the U.S. government entity has established a five point agenda:

  • Strengthen the housing market to bolster the economy and protect consumers
  • Meet the need for quality affordable rental homes
  • Utilize housing as a platform for improving quality of life
  • Build inclusive and sustainable communities free from discrimination, and finally, to
  • Transform the way HUD does business

In practice, HUD has historically failed to achieve hardly any of these objectives particularly well. So much so that in many ways, HUD may be considered to be the prototype for the institutionalization of corruption in the federal government, which comes at the expense of the program’s intended beneficiaries and U.S. taxpayers, both of whom are cheated in the process of the agency’s daily operations.

Two cases in point were recently reported by Luke Rosiak of the Daily Caller News Foundation. In the first story, it appears that an employee of the Department of Housing and Urban Development used their insider connections within the federal government to put themselves first in line ahead of a very long list of poor Americans seeking housing assistance from HUD.

A Department of Housing and Urban Development (HUD) employee was given subsidized housing project units in two states to occupy simultaneously, even as thousands of other impoverished citizens languish for years on long waiting lists, The Daily Caller News Foundation has learned.

That kind of corruption is sad, but at least the offender was caught, which should be a good thing, right?

Not necessarily. The bigger problem demonstrating the extent of the institutionalization of corruption within HUD came as a result of what happened after the offender was caught:

Immediately after federal officials caught the offending employee, HUD promoted her to manage the awarding of millions of tax dollars in grants, even though she lied to criminal investigators about double-dipping in the benefit programs her department administers.

Worse, tolerance for the corrupt actions of its employees would appear to extend all the way up to top of HUD’s management, whose response to the scandal to date is perhaps best described as being so ineffective and wasteful that it has only succeeded in more deeply embedding outright corruption within the federal government department.

A HUD spokesman claimed that federal officials took corrective action in the case by deploying an internal ad campaign for the department’s employees, using the expensive trademarked slogan “if you see something, say something.” The spokesman said simply that HUD has conducted “ethics training” classes for its employees when asked about the Virginia prosecutor’s observation that housing project paperwork didn’t ask key questions required to prosecute those charged with stealing housing benefits.

The spokesman said “the behavior cited in this OIG report is disturbing, disappointing, and in no way reflective of the hard work or values of thousands of HUD employees,” even though all of the HUD grantees and employees involved helped the Mathis fraud occur and none received significant punishment.

The spokesman also said HUD Secretary Julian Castro has “advised HUD employees to work with the IG’s staff to eliminate waste and mismanagement.” Yet the employee who lied to the IG about her own fraud was promoted.

The second story revolves around the actions by the U.S. Congress to counteract the runaway corruption at the Department of Housing and Urban Development by recent political appointees.

A federal agency will be breaking the law unless two of its top Obama administration appointees repay part of their salaries to taxpayers after barring another federal employee from telling Congress how higher-ups were allowing multi-million dollar frauds as part of a political deal.

The Government Accountability Office (GAO) determined Tuesday that the two Department of Housing and Urban Development (HUD) political appointees refused to let an employee speak with the House Committee on Oversight and Government Reform about a major scandal....

The GAO said that unless HUD’s associate general counsel and a deputy assistant secretary personally return three weeks’ worth of compensation, the department would be knowingly retaining “improper payments” on its books in violation of the law.

In all cases, unambiguous misconduct on the part of the Department of Housing and Urban Development’s bureaucrats came as they put their own interests ahead of those of regular Americans. In that sense, it is the same old story that we’ve seen play out time and time again at the Department of Veterans Affairs, the Environmental Protection Administration and the Internal Revenue Service.

The only difference is that now we have a fourth federal government department or agency in the running for the title of which has institutionalized corruption to the greatest extent within its ranks during the Obama administration.

Who Is Second Worst?


Friday April 22nd, 2016   •   Posted by Craig Eyermann at 6:46am PDT   •  

By any fiscal measure, the government of Puerto Rico is the worst off of all state or territorial governments within the United States.

But which U.S. state or territory is the second worst off?

4-12-16 backlog breakdown

In discussing the state of the city of Chicago, City Journal‘s Aaron Renn makes a strong argument that it is Illinois:

Fiscal problems are commonplace these days among local governments, but Chicago’s are particularly grim and far predate the Great Recession. Cook County treasurer Maria Pappas estimates that within the city of Chicago, there’s a stunning $63,525 in total local government liabilities per household. Not all of this is city debt; the region’s byzantine political structure includes many layers of government, including hundreds of local taxing districts. But pensions for city workers alone are $12 billion underfunded. If benefits aren’t reduced, the city will have to increase its contributions to the pension fund by $710 million a year for the next 50 years, according to the Civic Federation. Chicago’s annual budget, too, has been structurally out of balance, running an annual deficit of about $650 million in recent years.

As dire as Chicago’s finances are, those of Illinois are in even worse shape. The primary cause, once again, is pensions, which are underfunded to the tune of $83 billion. Retirees’ future health care is underfunded an additional $43 billion. There’s a lot of regular debt, too—about $44 billion of it. And Illinois, like Chicago, has run large deficits for some time. Despite raising the individual income tax 66 percent and the corporate tax 46 percent in 2011, the state is projected to end the current fiscal year with an accumulated deficit of $5.2 billion. While California has made headlines by issuing IOUs to companies to which it owes money, Illinois has taken an easier route: it just stopped paying its bills, at one point last year racking up 208,000 of them, totaling $4.5 billion. Some businesses have gone unpaid for nine months or even longer. Unsurprisingly, Illinois has the worst credit rating of any state. Unable to pay its bills, it is de facto bankrupt.

What accounts for Chicago’s miserable performance in the 2000s? The fiscal mess is the easiest part to account for: it is the result of poor leadership and powerful interest groups that benefit from the status quo. Public-union clout is literally written into the state constitution, which prohibits the diminution of state employees’ retirement benefits. Tales of abuse abound, such as the recent story of two lobbyists for a local teachers’ union who, though they had never held government jobs, obtained full government pensions by doing a single day of substitute teaching apiece.

Although the article was published in June 2012, virtually every aspect of Renn’s argument holds true today. Since it was written, to deal with its spending problems, the city of Chicago has imposed a massive property tax increase on its residents in a bid to come up with enough money to stave off its future bankruptcy for a bit longer.

Chicago last month approved a $543 million property tax increase, phased in over four years. With Illinois residents already paying an effective property tax rate of 2.32 percent (in 2013, the most recent year Census data is available), the increase will likely displace New Jersey’s long-standing record of the state with the nation’s highest property taxes (2.38 percent on average, in 2013).

Rahm Emanuel, Chicago’s Mayor, said the move was forced by large pension obligations, eroding credit ratings, and a legacy of expensive borrowing. Chicago’s combined taxes and fees will now be the highest of any Illinois city, and its property taxes higher than Los Angeles, New York, Washington, and Houston.

In the meantime, the state of Illinois now has over $7 billion of unpaid bills as it continues to run up its spending without even having a budget as the state’s legislators, who are largely representing the interests of the state’s public employees unions, refuse to compromise on a budget that would constrain the growth of their lavish benefits in any way, demanding instead that the state follow Chicago’s example and hike its taxes to sustain their spending for a little longer.

Like Chicago, the amount by which taxes might be increased in Illinois will never be enough to become solvent given the state legislature’s spending priorities.

National Debt as a Weapon


Tuesday April 19th, 2016   •   Posted by Craig Eyermann at 5:27am PDT   •  

national_park_service_9-11_statue_of_liberty_and_wtc_fire Today, President Obama is traveling to Riyadh, Saudi Arabia to meet with that nation’s new king for the first time.

But there’s a problem. There is legislation currently making its way through Congressional committees on Capitol Hill that threatens the interests of Saudi Arabia’s government, in that if it becomes law, would expose the government of Saudi Arabia to the risk of liability in U.S. courts for any supporting role it may have had in the September 11, 2001 terrorist attacks on the United States. And to incent President Obama to keep it from becoming law, the Saudi government is threatening to sell off its entire estimated $750 billion stake worth of U.S. government-issued debt securities. Reuters reports:

The Saudi Arabian government has threatened to sell of hundreds of billions of dollars’ worth of American assets should the U.S. Congress pass a bill that could hold the kingdom responsible for any role in the Sept. 11, 2001 attacks, the New York Times reported on Friday.

The newspaper reported that Saudi foreign minister Adel al-Jubeir told U.S. lawmakers last month that “Saudi Arabia would be forced to sell up to $750 billion in Treasury securities and other assets in the United States before they could be in danger of being frozen by American courts.”

What might expose Saudi Arabia to that kind of risk? Namely, there are 28 pages in the U.S. government’s official report on the 9/11 terrorist attacks that have been kept secret for years, which may be declassified as part of that legislation. Those 28 pages are reported to describe the role of Saudi Arabia’s government in that incident as something very different than what the U.S. government has been presented to the public. NBC News reports:

When the president leaves for a trip to Saudi Arabia on Tuesday an unresolved issue will go with him: did the Saudis play some role in supporting the hijackers responsible for the attacks on September 11th?

The question is being raised in the wake of a renewed push to declassify 28 pages of a 838-page congressional report on the worst terror attack on American soil.

The so-called “28 pages” are locked away in a secure basement room at the Capitol and although they can be read by members of Congress, the pages remain classified.

The pages are described as including information uncovered by U.S. intelligence and law enforcement authorities of how the 19 terrorists who executed the most dramatic terror attack on the United States in history were supported by the government of Saudi Arabia and a number of its wealthy citizens and even its charitable organizations.

What could make Saudi Arabia’s threat to sell off its holdings of U.S. Treasuries an effective one is the impact it would have on the market for U.S. Treasuries. If Saudi Arabia’s government chose to simply dump them on the market all at one time, the impact would be highly disruptive, where the dramatic increase in supply would cause the value of all U.S. Treasuries to plummet.

That loss of value would be seen in the yields, or interest rates, for U.S. Treasuries, which would spike upward. That impact would then propagate across the entire U.S. economy, because most consumer interest rates are linked to the value of those debt securities. The outcome would be that borrowing money in the U.S. would suddenly become much more costly for U.S. businesses and consumers, which would have a negative impact on economic growth if not offset.

Saudi Arabia accumulated its very large holdings of U.S. government-issued debt securities because it loaned a tremendous amount of money to the U.S. government over several decades. Its estimated $750 billion stake would represent just over 5.4% of the publicly-held portion of the U.S. government’s total public debt outstanding as of April 14, 2016, and 3.9% of the total U.S. national debt as a whole.

While those percentages may seem small, such an action by the Saudi government would have an outsized impact because of its effects on the margins of the market for U.S. government-issued debt securities.

In effect, the Saudi’s are seeking to compel the U.S. government into compliance with their preferences by weaponizing their holdings of the U.S. national debt, regardless of the interests of regular Americans. Any nation or institution with similar or larger holdings is capable of exercising that kind of threat.

To date, both the Bush and Obama administrations have accommodated the wishes of Saudi Arabia’s government to keep the 28 pages documenting its role in the September 11 attacks a secret as they have both chosen to prioritize other interests.

More Fine Print on the Pepper Payout


Monday April 18th, 2016   •   Posted by K. Lloyd Billingsley at 5:49am PDT   •  

PepperSpray_MLAs we recently noted, a report from the state auditor outlines how the University of California made substantial efforts to recruit nonresident students who pay significantly more tuition than California residents. In recent years, the University of California has hiked tuition for residents as well and in 2011 that touched off student protests at UC Davis. Campus cops pepper-sprayed the students and that led to a settlement of $1 million. The sprayed students each received $30,000 but a San Francisco law firm got $320,000 for a review of how the UC should respond to demonstrations. UC bureaucrats were also paid extra for their work on that review. A New York-based consulting firm bagged $445,879 for an independent probe that reported to a panel headed by former state Supreme Court Justice Cruz Reynoso, an appointee of Jerry Brown. Now it emerges that the costs were even more extensive.

After the pepper-spray incident, as Sam Stanton and Diana Lambert report in the Sacramento Bee, “UC Davis contracted with consultants for at least $175,000 to scrub the Internet of negative online postings.” The payouts were intended “to improve the reputations of both the university and Chancellor Linda P.B. Katehi.” The reporters also found that, since Katehi took office in 2009, the budget of the UC Davis “strategic communications office” has increased from $2.93 million to $5.47 million. As students and taxpayers might note, UC’s willingness to spend in this manner is not matched by cuts in bureaucracy. Indeed, some campuses have been bulking up.

In 2011, the same year as the pepper-spray incident, UC San Diego created a vice-chancellor for equity, diversion and inclusion. This “diversity sinecure,” Heather MacDonald wrote, was “wildly redundant” in light of an already massive diversity apparatus. The new post came at a time when the campus was losing star scientists to other universities, eliminating degree programs to save money, and hiking tuition.

Time Magazine Discovers America’s National Debt Problem


Saturday April 16th, 2016   •   Posted by Craig Eyermann at 8:41am PDT   •  

debt-cover-final

It only took them about 7 years to notice it, but the editors of Time Magazine may have finally recognized that the United States has perhaps a bit of a problem with having grown such a large national debt during that time. Economist and financial journalist Jim Grant, perhaps better know for his highly influential observations on interest rates, wrote the cover op-ed piece:

$13,903,107,629,266. Can the nation afford this much debt?

This much I have learned about debt after 40 years of writing and study: It is better not to incur it. Once it is incurred, it is better to pay it off. America, we have a problem.

We owe more than we can easily repay. We spend too much and borrow too much. Worse, we promise too much. We conjure dollar bills by the trillions–pull them right out of thin air. I won’t insist that this can’t go on, because it has. I only say that it will eventually stop.

What Jim Grant is referring to is the portion of the national debt that is “held by the public”, which if you divide it up by the United States’ estimated population of 323,342,221 people, works out to be the $42,998.12 figure cited on Time‘s magazine cover.

Of course, that would be on top of all the other debts you have – for your mortgage, your car, your education, and your own credit cards, to name just the most common forms of consumer debt in America today. The consumer finance site NerdWallet estimates all those other debts add up to $12.12 trillion, which works out to be $37,483.51 of private sector consumer debt for every American man, woman and child.

So just the value of the public portion of the U.S. national debt is over 114% of the amount of debt that regular Americans choose to maintain on their own.

If we add in the amount that the U.S. government has “borrowed” from the Social Security program and the pension programs of U.S. civilian government employees and U.S. service members, and also the money it borrows to fund the Federal Direct Student Loan program, the nation’s total debt rises above $19.2 trillion, which is $8.6 trillion higher than it was 7 years ago. Divided equally, that much larger figure works out to be $59,451.55 for every U.S. man, woman and child living in the U.S. today. That figure is 158% of the amount of private sector consumer debt for every resident of the United States today.

But as we all know, the burden of that sustaining such elevated levels of national debt is not equally shared among all Americans. To estimate how much of that burden is placed on you, run your numbers through the recently updated for 2016 MyGovCost calculator!

Getting back to Jim Grant’s op-ed, we found the following section particularly interesting, because he explains why he focused on just the publicly-held portion of the U.S. government’s total public debt outstanding:

Dollars aren’t so much minted these days. Rather, they issue from the Fed’s computers in billowing digital clouds. The cost of producing them is only the energy expended on tapping the keys. The Fed emits these electronic greenbacks to attempt to control the course of economic events. It’s a heaven-sent monetary system for a big-spending government.

You may struggle to pay that midteens rate on your outstanding credit-card balance. The Treasury gets by paying an average of just 1.8% on that portion of the debt, held by savers and investors both here and abroad. Defined in this way, we owe $13.9 trillion. The $19 trillion figure ticking upward on the famous National Debt Clock adds the debts the government owes itself. (How does this pseudo bookkeeping work? The Social Security Administration takes in–temporarily–more than it pays out. With the surplus it buys Treasury bonds. The bonds enlarge the debt clock’s debt.) It’s not so important that the government pays itself on time. What is important is that the government pay its public creditors on time. So cast your eyes on the exact numerical rendering of that slightly smaller sum: $13,903,107,629,266. It is unmanageable.

If $37,483.51 of consumer debt is difficult enough already for the average American to manage, adding another $42,998.12 on top of that to account for the U.S. government’s debt would indeed prove to be pretty unmanageable.

Considering the Federal Reserve’s role in financing the U.S. government’s debt, by our back of the envelope calculations, as of April 13, 2016, the Fed owns $2.94 trillion worth of U.S. government-issued debt securities. That means that the U.S. government has borrowed 17.9% of the total portion of the debt held by the public just from the U.S. Federal Reserve, which therefore makes the Fed the U.S. government’s largest single creditor. By comparison, the U.S. government’s largest single foreign creditor is China, which has directly loaned 10.6% of all the publicly-held portion of the national debt to the U.S. government.

Which if you think about it, explains an awful lot about whose interests are really being accommodated by the U.S. government these days.

Lift the Bridge on Wiser Transportation Spending


Thursday April 14th, 2016   •   Posted by K. Lloyd Billingsley at 5:12am PDT   •  

CA_Truck_MLThe California Department of Transportation has been rebuilding parts of Interstate 80 between the city of Auburn and the Nevada state line. Part of this work was the elevation of bridges to 16 feet 6 inches above the road surface so they can accommodate larger trucks. The final project, completed in March, was the elevation of a bridge in Newcastle built way back in 1959. Larger trucks no longer have to exit the freeway for that stretch, and the entire project is a boon to California commerce. Some 170,000 commercial trucks and other travelers use the I-80 route daily, and as Tony Bizjak of the Sacramento Bee notes, “an estimated $4.7 million worth of consumer goods crosses the summit each hour, making it one of the busiest commercial corridors in the country,” one that “connects California commerce to the rest of the United States.” This vital artery, however, was not the only one in need of renovation.

As veteran observer Dan Walters notes, California motorists pay some of the nation’s highest fuel taxes, yet California highways are “among the nation’s worst.” Governor Brown says the state needs another $59 billion for maintenance and repair. Yet, as we noted, State Auditor Elaine Howle finds that Caltrans has “weak cost controls” that “create opportunities for fraud, waste and abuse.” This comes at a time when the number of highway lanes in need of maintenance has increased from 11,053 miles to 15,272 miles.

The $59 billion for road maintenance and repair approaches the estimated $68 billion the state’s high-speed rail project would cost. With 36 miles of tunnels through the mountains north of Los Angeles, the bullet train’s final cost would surely be much higher. Despite other obstacles, and fading demand, the state proceeds with the project. Politicians would do better to set aside this boondoggle and lift the bridge on improvement of the state’s roads and highways. In the manner of I-80, these arteries connect Californians to commerce and carry workers to their jobs.

Pensions for Public Servants to Force Government Failures


Wednesday April 13th, 2016   •   Posted by Craig Eyermann at 5:57am PDT   •  

bankruptcy-500-source-fbi Investor’s Business Daily editorializes on the biggest problem that state and local governments face across the United States:

A new report by Hoover Institution Senior Fellow Joshua Rauh shows that, unless action is taken soon, many local governments could face bankruptcy because they can’t meet their pension obligations.

“This study shows that unfunded pension liabilities are devastatingly widespread and only getting worse,” said Rauh. “With hundreds of state and local governments drowning in retiree benefit debt, the need for bold structural reform has never been so pertinent.”

The problem is surprisingly simple: States and cities overestimate returns on their pension fund investments, while systematically underfunding them. The result is a growing deficit that will require massive tax hikes or dramatic and painful cuts in government services and promised pensions to public workers.

The findings of the report, Hidden Debt, Hidden Deficits: How Pension Promises Are Consuming State And Local Budgets are summarized in the following synopsis – we’ve added the emphasis for the section that describes the scale and scope of the problem:

Despite the introduction of new accounting standards, the vast majority of state and local governments continue to understate their pension costs and liabilities by relying on investment return assumptions of 7-8 percent per year. This report applies market valuation to pension liabilities for 564 state and local pension funds, representing around 97 percent of the U.S. universe. Considering only already-earned benefits and treating those liabilities as the guaranteed government debt that they are, I find that as of FY 2014 accrued unfunded liabilities of U.S. state and local pension systems are at least $3.412 trillion, or around three times more than the value reflected in government disclosures. Furthermore, while total government contributions to pension systems were $109 billion in 2014, or 7.3 percent of state and local government revenue, the true annual cost of keeping pension liabilities from rising would be approximately $261 billion or 17.5 percent of revenue. Applying the principles of financial economics reveals that states have large hidden unfunded liabilities and continue to run substantial hidden deficits by means of their pension systems.

The need to keep the pension systems for government employees afloat is driving some anti-public service behavior among a number of state, local and territorial governments in the United States. For example, the most financially distressed government within the U.S., the territorial government of Puerto Rico, is acting to impose capital controls on its residents, preventing them from being able to take their money out of the territory.

Meanwhile, in New York City, the development of public infrastructure in the form of a much needed third tunnel to bring water to the city in case either of its two existing water tunnels fail is being indefinitely put on hold because of the city’s public employee pension liabilities, even though a critical part of it is almost finished:

Mayor Bill de Blasio has postponed work to finish New York’s third water tunnel, a project that for more than half a century has been regarded as essential to the survival of the city if either of the two existing, and now aged, tunnels should fail.

The new tunnel has already been completed and is carrying water into Manhattan and the Bronx. But segments that would supply Brooklyn and Queens, home to five million people, though also virtually finished, still await the building of two deep shafts.

If calamity or age forced the shutdown of City Water Tunnel No. 2, which is 80 years old, the primary water supply to much of Brooklyn and Queens would be lost for at least three months, city engineers said, the time it would take for an emergency activation of the sections of Tunnel No. 3 in Brooklyn and Queens that have already been finished.

The entire Brooklyn-Queens leg of the new tunnel was scheduled to be finished by 2021, with $336 million included in the capital budget in 2013 by Mr. de Blasio’s predecessor, Mayor Michael R. Bloomberg, for whom completion of the third tunnel was the most urgent and expensive undertaking of his tenure.

Scott Sumner identifies the real reason for Mayor DeBlasio’s bizarre decision to expose New York City to the increasing risk of structural failures from its aging public water supply infrastructure, which would impair the supply of water to over 60% of the city’s residents.

So the infrastructure that we supposedly need is started by a Republican, and abandoned by a progressive. The real “unmet need” is not infrastructure; it’s higher pay and fatter pensions for public employees.

Government is really all about priorities. In all these cases, the interests of government bureaucrats are being put ahead those of regular people. And because it is, their future failure is not being left to chance.

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