The following chart appeared in a Bloomberg article several weeks ago comparing the size of all-but-completely-bankrupt U.S. territory Puerto Rico with the 50 states. You might want to click on the image to see a larger one to see how your state ranks.
Bloomberg explains the numbers:
Puerto Rico’s debt per capita of $15,637 is more than 10 times higher than the average debt per capita of the 50 states, according to Moody’s. The rating company does not include city, county, or agency debt in the calculations for U.S. states unless the state guarantees the debt. That differs from the totals for Puerto Rican debt, which include all the island’s debt except that of Prepa, the island’s public electric utility.
The state with the worst debt-per-capita figure is Connecticut, where the debt burden is a little under a third that of Puerto Rico. But that’s not the state that’s the worst off because of its debt – we’ll have more on that dubious honor later this week!
In California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, Lawrence McQuillan discovered that California accounts for $550 billion to $750 billion of the $4.7 trillion in unfunded pension liabilities nationwide. The biggest player is the California Public Employees’ Retirement System (CalPERS) which in 1999 assured legislators that its investment earnings would cover costs of payouts without burdening taxpayers. But as Dan Walters of the Sacramento Bee noted, these assurances turned out to be false. In 2014 CalPERS “earned an anemic 2.4 percent on its investments in the past year, less than a third of its 7.5 percent target.” CalPERS value plummeted by 25 percent in one year alone and the government pension giant “sharply increased its mandatory contributions from the state and its local government clients to cover losses, dramatically raising pension costs.” Unfortunately, CalPERS does more than botch pensions.
As Jon Ortiz of the Sacramento Bee observes, CalPERS set up a long-term care insurance fund 20 years ago and ignored warnings of failure. Plaintiffs in a class-action lawsuit “claim the fund and its business agents misrepresented the insurance in sales pitches and materials, then made poor business decisions that wound up foisting huge rate hikes on tens of thousands of policyholders.” Some 150,000 government employees took out policies for long-term care that guaranteed lifelong coverage, inflation-adjusted coverage, or both. “The program lost money despite incremental rate hikes over the years,” Ortiz explains, and in July a $597 monthly premium jumped to $813 and next year will rise to $1,220 per month.
As Ortiz notes, a long-term care policy with fixed benefits can be had for as little as $237 per month, but that is not what the class-action plaintiffs want. As one of the attorneys told the reporter, they want the legislature to use tax money to make the CalPERS insurance fund whole. In other words, shake down taxpayers yet again to bail out incompetent bureaucrats. Based on past performance, legislators will be delighted to go along.
The Pentagon deploys the Joint Land Attack Cruise Missile Defense Elevated Netted Sensor System (JLENS) to guard the nation from cruise missiles and other low-flying threats. JLENS primary contractor, Raytheon, says the system is proven capable and performing well right now, but as David Willman notes in the Los Angeles Times, taxpayers might have serious doubts about that.
Since 1998, the Pentagon has spent $2.7 billion on “a system of giant radar-equipped blimps” to warn of attack. But despite the lavish spending, JLENS fails to do the job. In 2012 the Pentagon rated the system “poor” in four critical performance areas and charged JLENS with “low system reliability.” JLENS has trouble tracking flying objects and difficulty distinguishing friends from foes. The blimps can be grounded by bad weather and in combat zones provide sitting ducks for enemy attack. Even in good conditions the system cannot provide continuous surveillance and software glitches prevent it from communicating with air-defense networks.
JLENS is supposed to be particularly vigilant in the nation’s capitol region. Yet, as Willman reports, on April 15, 61-year-old postal worker Douglas Hughes flew a single-seat gyrocopter through 30 miles of restricted airspace and landed on the lawn of the U.S. Capitol. It was JLENS task to detect such an aircraft but Admiral William Gortney of North American Aerospace Defense Command explained that the system was “not operational” that day and he couldn’t say when it would be.
The Army “tried to kill JLENS in 2010,” according to the Los Angeles Times report, but “Raytheon mobilized its congressional lobbyists,” who wield considerable clout. As a result, JLENS became a “zombie” program, meaning “costly, ineffectual and seemingly impossible to kill.”
For instance, the federal government department has had to tell its employees to stop defecating in its office hallways. The agency’s top expert on climate change is currently serving time in federal prison for collecting a paycheck for years without actually doing any work. And, of course, its workers disregarded all warnings and polluted a river with toxic contaminants this past summer, as the agency’s director, Gina McCarthy, is increasingly faced with calls for her impeachment for gross negligence and other misconduct.
As you might imagine, these things could make the EPA a dreary place to work, if not for one thing: new, high-end office furniture! Kellan Howell of the Washington Times reports on a previously unknown perk of being a bureaucrat at a troubled government agency:
The federal agency that has the job of protecting the environment doesn’t seem to have too much concern for trees, at least the ones cut down to make furniture.
The Environmental Protection Agency over the past decade has spent a whopping $92.4 million to purchase, rent, install and store office furniture ranging from fancy hickory chairs and a hexagonal wooden table, worth thousands of dollars each, to a simple drawer to store pencils that cost $813.57.
The furniture shopping sprees equaled about $6,000 for every one of the agency’s 15,492 employees, according to federal spending data made public by the government watchdog OpenTheBooks.com.
When the bureaucrats who work at the EPA show up at work, they can and apparently do have their own personal environment brightened by sitting in their Herman Miller Aeron chairs beside their Knoll Executive desks. If not, they can always relax in the available Hayworth Galerie Lounge chairs and matching settees.
At least now we know whose environment the bureaucrats of the EPA are most out to enhance and protect. Americans such as the Navajo, who depend on water from the EPA-contaminated Animus River,are finding that EPA officials who might be looking out for them can be hard to find.
Jay Obernolte of the Los Angeles Times asked a question that nearly every California resident who has traveled in a car almost anywhere in the state at almost anytime in recent decades might also have asked: “Why are California’s roads so bad?“
Given that Californians pay about 40% more in taxes and fees than the national average, it is only reasonable to expect that the quality of roads we get in return should be significantly better than in other parts of the country.
Unfortunately, anyone who has driven in our state recently knows that this is simply not the case. According to the Reason Foundation’s 21st Annual Highway Report, California is home to one of the worst highway systems in the nation. The report ranks our state second to last in both the condition of urban interstates and in maintenance.
So where does all the extra money that California collects in fuel taxes and vehicle fees go? Obernolte finds that a large percentage of the money that the state collects is being diverted for other purposes.
For instance, 100% of the sales tax on diesel fuel is currently diverted to public transit projects. If we spent this money on our road infrastructure instead, we’d have an additional $620 million each year for repairs. Cap-and-trade revenue, currently allocated with the intention of reducing greenhouse gases, is a more appropriate source of funding for mass transit.
A similar situation exists with the nearly $1 billion that is collected annually from the vehicle weight fee program. During the recession, the Legislature approved AB 105, which directed revenue from truck weight fees to support the general fund. Now that our economy has improved, budget gimmicks like this are no longer needed.
That assumes, of course, that California’s state government doesn’t actually still need to divert those funds to boost its solvency, as the state’s ability to borrow money to fund the topmost priorities of its politicians—greenhouse gas reduction schemes and mass transit projects—are quite costly. So much so that creditors would demand the state be able to make its debt payments before loaning it any money to support them.
That is something that should be fresh on the state’s politicians’ minds, as it just finally paid off the debt it took on during a previous fiscal crisis. KQED’s John Myers reflects on the lessons that should have been learned as the state just finished paying a million dollars a day, every day, just in interest, for 11 years.
Well, certainly, the state got through the worst times. But again, in that million dollars a day, every day, for 11 years, that’s a lot of interest. I don’t think that the voters really understood that. Schwarzenegger did not sell that part of the plan when he was out campaigning for the deficit bond that it was going to cost all of this in interest. I think there are definitely lessons learned.
The politics of California were so polarized back then. And of course, we have seen that now on a national level. There are, you know, some lessons about what happens that the political system can’t resolve at some point. And I think, too, there’s probably a lesson for voters that borrowing money in state bonds is not free money and that it does come at a cost. All of those interest payments could have gone for something else in California.
That money—just as an example—could have paid for the state’s share of the University of California system for like 15 or 16 months. I mean, it is a lot of money. And these were choices that the voters were making. I think that might be the real lesson learned.
A better lesson to learn is that we cannot afford our politicians to be so careless with public finances that the people’s real needs go unfulfilled.
What benefit does China get for being the largest single foreign lender of money to the U.S. federal government?
Well, if Time magazine’s Rana Foroohar is right, the biggest benefit may be that China gets the right to set the course for U.S. monetary policy. Foroohar writes:
In important ways, China now controls U.S. monetary policy. What happens in the Middle Kingdom affects the decisions that Fed chair Janet Yellen can make about whether to raise or lower interest rates. We saw this just a few days ago when the Fed held fire on a long awaited hike in rates (despite the fact that the U.S. is at full employment) because of global economic headwinds emanating from China, most particularly the disinflationary effect that slower Chinese growth has on the world. Yellen needs inflation to be higher–and in particular, she’d like to see wage inflation be higher–before raising rates. Yet there’s no indication that will happen anytime soon, and China is a big reason why.
As I wrote a couple of weeks back, the economic slowdown in China and the crash of the Chinese equity market (which is a symptom of the former, not a cause) is really the echo of 2008. When American consumers stopped buying stuff after the subprime crisis, China tried to take up the slack in the form of a massive government stimulus program. This meant a major run up in debt. A few years back, it took a dollar of debt to create every dollar of growth in China. Now it takes four times that. The debt-to-GDP ratio in China is a nauseating 300%. (American debt hawks worry about our rate, which is less than a third of that.)
At this point, we need to correct Foroohar’s debt statistics, because she has confused the total debt owed by all entities in China, which includes money borrowed by local governments, businesses and households, with the debt owed by just the U.S. federal government to its direct creditors, which is presently about 101% of the nation’s GDP. And it’s only that low because the U.S. government hit its statutory debt ceiling back in mid-March 2015. If the U.S. Treasury were allowed to borrow more, and they would if they could, it would be considerably higher.
Fortunately, Forbes‘ Kenneth Rapoza collected the true apples-to-apples data for comparison back on May 9, 2015. Here is what he reported at the time:
Is it time to start panicking about China’s debt? If you believe Beijing won’t support the municipalities that have overdosed on credit over the last few years, then absolutely. But overall, China’s federal level debt remains low, bank’s remain strong despite higher non-performing loans on the balance sheet, and yet we still get a total debt to GDP ratio of a whopping 282%.
First, a little comparison. The U.S. total debt to GDP, which includes household and corporate debt, is 331.7%. The economy has not imploded because of that, though there are plenty of people out there with books and newsletters to sell who say it is only a matter of time. They might be right. The same holds for China.
Since that time, the Gross Domestic Product of the U.S. economy has been revised, where the most recent data for the total debt owed by U.S. entities now being reported totals some 334.6% of GDP, through March 31, 2015.
So really, the total amount of debt owed by entities in both nations is quite high, but with the U.S. having a significantly higher total debt-to-GDP ratio than China. And since the U.S. government directly owes China so much money, China would appear to be getting the perk of being able to tell the Fed to put off its plans to increase interest rates for its own benefit.
California is the least tax-friendly state according to new rankings from Kiplinger. Much of that unfriendliness is due to the 2012 Proposition 30, which imposed the highest income tax rate in America, 13.3 percent, and also raised the sales tax to 7.5 percent, also highest in the nation. Proposition 30 was pitched as a temporary measure, with the sales tax hike set to expire in 2016 and the income tax hike in 2018. As we recently noted, the California Teachers Association, Service Employees International Union and other government employees unions are pushing a measure that would extend the income tax hike to 2030. State education superintendent Tom Torlakson (D-CTA) backs the measure. Now another group is getting into the act.
As Christopher Cadelago explains in the Sacramento Bee, the SEIU and other groups want to “expand and make permanent the Proposition 30 income tax increases on the state’s highest earners.” Their measure would “increase taxes on couples earning at least $580,000 annually,” which were set to expire in 2018. It would also “impose even higher income tax rates for so-called “super-earner” couples that make more than $2 million a year.” Heading the measure is Ace Smith, “who ran the original Proposition 30 campaign and Brown’s gubernatorial campaigns.” What a cozy world. But of course, it’s all for the children, not for California’s government employees, who as Jon Coupal notes are the highest paid in all 50 states but always want more. “No matter how high taxes are increased,” Coupal says. “It’s never enough for public officials and bureaucrats who live off taxpayer funded paychecks.”
The ruling class ruse is to pitch something as temporary then extend it or make it permanent. The California Coastal Commission, an unelected body that overrides elected governments on property rights issues, started temporary then became permanent. Withholding from workers’ paychecks started as a temporary measure during World War II, but politicians made it permanent. Government bosses like getting workers’ money before they do. Meanwhile, as the two bids to extend Proposition 30 tax hikes confirm, government greed is truly fathomless.
As we noted in 2013, California’s government employee unions are so confident of their power that they demonstrate in front of the capitol chanting “This is our house!” They were right then and are still right now, as a Sacramento Bee editorial explains.
Senate Bill 376 by Ricardo Lara is “a sop to the American Federation of State, County and Municipal Employees (AFSCME), which represents many University of California employees.” The bill would ban the University of California from outsourcing full-time jobs to companies “whose benefits don’t match the university’s wage and sweet benefit plans for comparable employment.” The bill would cost $36 million a year, plus another $12 million to $24 million to boost the wages of new employees.
Assembly Bill 1293 by Pasadena Democrat Chris Holden, and Senate Bill 682 by Sen. Mark Leno, “seek to restrict the ability of state agencies and the court system from entering into contracts for services that are or could be performed by court or state employees.” The Bee editorialists charge that the bills are a sop to the AFSCME and a “valentine” to the Service Employees International Union, the SEIU. That’s the government employee union that chanted “This is our house!” outside the capitol in 2013.
When legislators go out of their way to intervene on behalf of government employee unions, says the Bee, “taxpayers end up paying.” They do indeed, but there’s more to it. According to the federal Bureau of Labor Statistics, unions represent only 16.3 percent of California workers. A full 83.7 percent of California workers, the vast majority, are not union members. So when politicians go out of their way to intervene on behalf of unionized government employees, they are not exactly representing the people. It’s a case of bad government, and California’s ruling class wants the people to pay more.
The California Teachers Association and other government employee unions are pushing a measure that would extend the 2012 temporary tax hikes of Proposition 30 for 12 years. State education superintendent Tom Torlakson (D-CTA) backs such an extension. So under current conditions, the majority of California’s taxpayers can’t exactly say the capitol is “their house.”
We’re always on the lookout for creative ways to describe the state of the U.S. national debt and the factors that affect it. Today’s exercise in data visualization comes to us via the Twitter feed of DonDraperClone, who has assembled several charts showing some of the biggest drivers of the U.S. government’s total public debt outstanding.
The individual charts were generated by using real economic data provided by the Federal Reserve’s Economic Database, also known simply as FRED!
As Lawrence McQuillan has observed, unfunded pension liabilities have soared to $4.7 trillion nationwide, and California accounts for $550 billion to $750 billion of the total. CalPERS, the Golden State’s biggest public pension fund, has authorized 99 types of special payments that count in pension calculations, but the only one that drew any objection from Gov. Jerry Brown was the temporary upgrade pay. With the prospect of a pension reform measure on the 2016 ballot, education bureaucrats are coming up with new ways to make the pension crisis worse.
As Loretta Kalb observes in the Sacramento Bee, “trustees for some of Sacramento’s largest school districts converted hefty superintendent allowances for vehicles and computers into base pay. The moves ensure that superintendents can still count the allowance amounts toward their pensions.” The San Juan district tacked on $16,000 in allowances to the salary of superintendent Kent Kern, bringing his compensation to $270,185. In similar style, the Twin Rivers district “converted a $10,000 car allowance into pay for Superintendent Steven Martinez, bringing his pay to $260,000.” The pensions for Kern and Martinez will of course be calculated from the higher figure. And as we noted, Martinez also bagged a $20,000 pay increase and doubled his retirement payment. The pay and benefit hikes were not connected to any increase in student achievement. The Twin Rivers district ranks a lowly 314th in the state, with a dismal 47 percent proficiency in math and 44 percent in reading. Other education bureaucrats, including “associate” and “assistant” superintendents, also got big raises not connected to student achievement.
The lessons for taxpayers remain clear. The bloated government monopoly education system may fail students and parents, but it serves well as a piggy bank for bureaucrats. Without effective oversight or accountability, a reactionary ruling class deploys its power to quash reform.