LA Mayor Says "No Question You’ll See Some Cities Default"; Mayor Daley Says "I wouldn’t doubt it"; NY Mayor Goes After Public Pensions

In a long overdue move, New York Mayor Michael Bloomberg is calling for increased retirement ages of public union workers, changes in union seniority rules, and the ability to negotiate directly with unions instead of the state setting pensions.

Chicago Mayor Daley and Los Angeles Mayor Antonio Villaraigosa both warn of defaults even though the LA Mayor downplays LA's default risk. In Washington state, Governor Christine Gregoire, a life-long bureaucrat and part of Washington's problem, at long last has her hands tied by voters refusing to accept more tax hikes.

New York Mayor Michael Bloomberg Goes After Public Pensions

The New York Post reports Bloomberg warns of deep budget cuts

Mayor Bloomberg warned in his “State of the City” address Wednesday that New York still faces deep budget problems and promised he would seek to cut pensions for government workers that he said were more generous than those found in the private sector.

In his speech on Staten Island, Bloomberg said reforms of the city’s pension system will be his administration’s number one priority in Albany in the weeks ahead. The mayor said he had enlisted the help of former mayor Ed Koch in the effort to wrest control of city-worker pensions back from the state.

The mayor said he wants to raise the retirement age to 65 for non-uniformed workers. The change, which would only apply to new hires, would save billions of dollars over the long term, Bloomberg said.

He said the city would ask state lawmakers to change the law to allow the city to negotiate pension benefits directly with the unions during collective bargaining. Right now, the state, not the city, sets pension benefits.

He vowed not to sign any contract with a salary increase unless it also included benefit concessions that save the city money.

Currently, most non-uniformed city workers can retire at the age of 57, while city teachers who have served at least 25 years can retire at the age of 55.

Year-end bonuses for future uniformed retirees would also be eliminated, saving about $200 million per year.

“City taxpayers just cannot be expected to give substantial holiday bonuses when so many of them are out of work or having their own wages frozen or cut,” Bloomberg said.

Patrolmen’s Benevolent Association president Patrick Lynch responded after the speech that the union intends to fight to protect the payments, which were promised in return for concessions in an earlier round of pension reforms.

City Comptroller John Liu sounded a note of caution regarding the mayor’s proposal to cut pensions, and said workers’ unions should be brought to the table on the matter.

“It’s not accurate to characterize the pensions as generous,” he said following the speech.

Public Pension Ponzi Scheme

City Comptroller John Liu has an impressive academic background, but is a fiscal illiterate.

It would be nice if we could afford to have teachers retire at age 55 but we can't. The average taxpayer cannot retire at age 55.

Quite frankly, Mayor Bloomberg was far too generous in his demands. Public pensions are nothing but a gigantic ponzi scheme. As boomers head to retirement, the effects are becoming widely known.

I am sick of public unions and public employees awarding themselves benefits far beyond what anyone in the private sector sees. One might think that with Liu's background he should be able to understand the economic infeasibility of it.

This is what happens when you put Mathematical Physicists (or bureaucrats in general) in positions that require a modicum of common sense.

Comptroller Liu should teach math or physics, or go back to Pricewaterhouse Coopers, a job he had before joining NY City Council.

Economic Insanity from the Patrolmen’s Benevolent Association

There's still more to the story in Bloomberg Seeks NYC Pension Changes, No Tax Boost

New York Mayor Michael Bloomberg called for avoiding tax increases and raising some workers’ retirement age as he laid out steps to plug a deficit that may be about 7 percent of a projected $67.5 billion budget.

The mayor, 68, enters the second year of his third term facing a $2.4 billion deficit, not counting at least $2 billion in state aid, which the city expects to lose, for education and health care.

“A new defining challenge confronts us: forcing government to live within its means,” Bloomberg said in his speech, which lasted about 45 minutes. “The city’s economic future is hanging in the balance.”

Pat Lynch, president of the Patrolmen’s Benevolent Association, said police officers paid for the benefit with more than $1 billion in past surplus pension earnings and $75 million upfront.

“Having realized billions in benefits, the city now wants to renege,” he said in a statement. “We intend to hold them to it.”

Paid For Benefits? No, Not Quite!

Another thing I am tired of hearing is how the union "paid for benefits".

The union did not pay for a damn thing. 100% of the salary that goes to public workers comes from taxpayers. Even if union members put a portion of their salary into pension plans, the source of that money is taxpayers.

The contribution rate for employees varies but seems to be approximately 5% (not counting employer (taxpayer) contributions. The reality as I stated above is that 100% of the contributions come from taxpayers, but let's focus on that 5%.

Assume an officer contributed 5% a year for 20 years on a salary of $100,000. That is a total contribution of $100,000. On that total contribution of $100,000 the officers expect to get $100,000 a year for life on retirement at age 58 or whatever.

That is how outrageous police and firefighter sense of entitlement is.

To be fair, I ignored compounding, but then again the stock market has been flat for 10 years. Moreover, Those officers were not making $100,000 twenty years ago when the the market was compounding at it greatest rate.

Thus the idea, that the police paid for their benefits is totally absurd in more ways than one.

The way to deal with this is via bankruptcy.

Bloomberg should declare the city to be fiscally insolvent. Then the Patrolmen’s Benevolent Association can see what it is entitled to in bankruptcy court. I suggest about 25% of what they think.

Washington Govern Christine Gregoire Proposes $4.1 Billion in Cuts

It's sickening to listen to Governor Gregoire whine, but march on we must. Please consider Governor Gregoire Dismantling the Washington She Helped Build

Christine Gregoire began her career in 1969 as a prison-system typist. Last month, as Washington’s governor, she proposed closing one of the state’s 13 penitentiaries to save $17.6 million.

“I’m a long-term public servant,” Gregoire, 63, said in a Dec. 15 interview in her Seattle office. “The budget I put out today is nothing like anything I would have expected ever to be put out in the state of Washington. And I am the last person I would ever have expected to put it out.”

Voters in November rejected an income tax and restrained the state’s ability to increase other levies. Gregoire, a lifelong state employee who was attorney general before becoming a two-term governor, says she now must slash health care, education and other programs to confront a projected $4.6 billion deficit.

“I created the Department of Early Learning,” Gregoire said. “I put more money in K-12 than I think has been put in there in years, if not decades. I was really investing in higher education because I think education is the future for us. And I’m dismantling all of it.”

Gregoire’s plan calls for a 3 percent reduction in state employee pay, consolidating 21 agencies into nine and eliminating park funding and paying for them through user fees.

“We’ve cut into the bone already and now we’re digging into the marrow,” Remy Trupin, executive director at the Washington State Budget & Policy Center, a Seattle-based think tank that focuses on fiscal issues, said in a telephone interview. “We’re in a place where unimaginable things are being offered.”

Gregoire on Dec. 13 said she wants to reduce the $7 billion unfunded pension liability by 60 percent by ending automatic pay increases for those covered under older plans for teachers and public employees that were closed in 1977. Current plans are fully funded, according to the governor’s office.

Cuts? What Cuts?

Hello Governor Gregoire, Remy Trupin. Get a grip. A 3 percent reduction in state employee pay is not even a down payment on what needs to happen. What about pension benefits? What about defined benefit plans that need to be eliminated?

How many of those state agencies you are whining about merging should exist at all? Instead of closing a prison, how about privatizing the prison guards? Then again, why not do both (and free those in for minor drug problems in the process)? Why not outsource everything to the lowest cost bidder?

Moreover, I see you bragging about education: "I created the Department of Early Learning. I put more money in K-12 than I think has been put in there in years, if not decades."

That's fantastic Governor. Pray tell what results do we have to show for it other than robbing taxpayers to give money to the teachers' union? Where are the results? At what cost?

I can easily see ways Washington can lower taxes, not raise them.

Dedicated bureaucrats like Christine Gregoire are a huge part of the problem. They think government has solutions to every problem. That's an incredibly nasty situation, especially in conjunction with vote buying by public unions and politicians like Gregoire who are willing to tax citizens to death so the union workers can get benefits everyone else just dreams about.

No Question You’ll See Some Cities Default

Chicago Mayor Daley and Los Angeles Mayor Antonio Villaraigosa say City Bond Defaults Likely Amid Strain

The mayors of Los Angeles and Chicago said the financial strains still weighing on local governments in the wake of the recession may cause cities to default on their bonds.

Los Angeles Mayor Antonio Villaraigosa, a Democrat, said municipalities are being squeezed as states move to balance their own budgets, a step that can involve taking more funds that would otherwise be sent to towns and cities.

“There’s no question you’ll see some cities in default,” Villaraigosa told reporters today at a press conference in Washington, where the U.S. Conference of Mayors is meeting. “The difference between us and the federal government is they can print money. The states balance their budget oftentimes on the backs of cities, counties and school districts. We actually have to balance a budget.”

Villaraigosa said in an interview that he didn’t think the number of defaults are going to be as large as some have speculated, saying they may be confined largely to small cities. He said it was a “nonstarter” for his city.

Chicago Mayor Richard Daley, a Democrat, said some cities are struggling to meet expenses, including costs for their employees’ pensions.

“These are serious financial problems for many cities, especially the smaller cities that can’t deal with the day-to- day cost of government,” Daley said today at the press conference in Washington. Asked whether he expected to see a lot of cities default, he said: “I wouldn’t doubt it.”

Villaraigosa emphasized that Los Angeles, the second largest city in the U.S., isn’t veering toward a default.

“We’re going to do everything we have to do to balance our budgets,” he said, referring to himself and other mayors.

“There is no scenario where we would ever be in the ‘B’ situation,” he said, referring to municipal bankruptcy. “We don’t even use that word.”

The fact of the matter is Los Angeles is bankrupt already. So is Houston, Oakland, Miami, Harrisburg, San Diego, Newark, Detroit, and numerous other cities.

That is how deep in the hole city pension plans are. The only way out of this mess is to cram pension reform on public union workers whether they like it or not. Since they will resit, and since Villaraigosa is beholden to public unions, there is not much hope for anything other than bankruptcy.

For more on LA, please see

L.A. to Shut Down City Departments in Budget Crisis; IBEW Local 18 Head: "How Taxpayers Feel Is Not Relevant"

Mayoral Graft and "Sacrifices" in L.A

L.A. Controller Says City Could Run Out of Cash by May 5

Please read those links. They show how and why LA is broke, how Villaraigosa is in bed with public unions, and why he is incapable of changing anything. Bear in mind, the links are about LA, but they are certainly representative of problems in many other cities.

Mayor Daley, 6 Alderman Will Not Seek Reelection

Please consider Daley won't run for re-election: 'I have done my best'

Mayor Richard Daley says he will not run for re-election in 2011, saying it's "time for me, it's time for Chicago to move on."

"The truth is I have been thinking about this for the past several months," Daley said at a City Hall news conference that stunned the city. "In the end this is a personal decision, no more, no less."

Daley spoke for less than five minutes and took no questions

His announcement comes as he faces a record $655 million budget shortfall. Last month, the mayor said he's looking at hiring private firms to take over more city functions, including potentially running the Taste of Chicago, as a way to cut costs.

Daley limited his options this time around after raising property taxes in 2007, selling off parking meters and raising fees in 2008 and spending reserves last year. The mayor reiterated late last month that he won't be increasing taxes or fees or auctioning off more city assets.

The mayor joins at least a half-dozen aldermen who already have said they won't seek re-election next year.

The mayor's administration has been buffeted by a spate of summer violence, a weak economy and a high-profile failure to land the 2016 Olympics. Dissatisfaction abounds, over Daley's handling of the crime problem, his efforts to rein in government corruption and his backing of a controversial long-term parking meter system lease.

Mayor Daley understands the fiscal mess Chicago is in, at least partially. He also knows Governor Quinn will make matters worse.

He does not want to be mayor when the pension crisis blows sky high, when cramdowns are forced on the teachers', police, and firefighters' unions and when violence increases in the process.

In short, Mayor Daley hopes to escape the blame for everything that is about to happen. Six aldermen are bailing ship with him.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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