Too Many Promises

I don’t know what it is about public officials and Ponzi schemes, but the former finds the latter irresistibly attractive almost everywhere. Maybe it’s the fact that the law lets them get away with it. They get off scott-free when they do the very same thing that landed Bernie Madoff in the hoosegow.

Although national attention tends to focus on Social Security, Medicare and other unfunded federal obligations, many state and local governments are in far worse shape. As I explained at my blog the other day, post-retirement health care promises are the fastest growing component. I believe we are on the cusp of a spate of local bankruptcies. Although states cannot declare bankruptcy, they can default on their debt. In California, this seems almost inevitable.

Did you know that the average state has unfunded retiree benefits equal to more than one-fifth (22%) of the income of its residents? Seven states (Alaska, Ohio, Hawaii, New Jersey, New Mexico, Illinois and Kentucky) have unfunded obligations in excess of one-third of their states’ annual income. In Alaska, it’s about half (48%). Take Ohio, for example. The state needs 41% of one year’s income of its citizens right now — in the bank, earning interest — in order to fund its future obligations. And if it doesn’t do that this year, next year it will need even more.

As for health care obligations, seven states (Alaska, Hawaii, Connecticut, Kentucky, New Jersey, Michigan and West Virginia) have unfunded non-pension benefits in excess of 10% of state income. In Alaska its 20%.

These are some of the findings of a National Center for Policy Analysis study by Courtney Collins and Andrew Rettenmaier. Another finding: The real totals are about twice what these governments are reporting.

Orange County, California, with $1 billion in unfunded health benefits for retired public employees, is an example of the problem. The city of Westminster, Calif., has an unfunded health liability greater than its operating budget. To cover the shortfall it needs almost $700 for every man, woman and child in the city, or almost $2,800 for a family of four. Like most other Orange County cities, however, Westminster is only paying its annual retiree health costs and is contributing nothing to fund future expenses.

Reason Foundation scholar Adam Summers reports that the state of California has $500 billion in unfunded pension, and unfunded health liabilities that have grown fivefold over the past decade (from $1 billion to $5 billion) and will triple (to $15 billion) over the next decade.

An Orange County sheriff-turned-felon gets $2,184 a year in health benefits on top of a $217,457 annual pension. A former assistant sheriff gets $5,466 in health care plus a $231,990 pension.

Question: Should the criminal statute that applies to Bernie Madoff also apply to public officials who claim these promises are paid for when in fact they are spending the money (just like Madoff) on other things?

Question No. 2: Should the criminal law that applies to people who hawk Madoff-like schemes to gullible investors also apply to newspaper columnists who try to tell us that government Ponzi schemes are fiscally sound?

John C. Goodman, PhD, or  is president and CEO of the National Center for Policy Analysis. He is also the Kellye Wright Fellow in health care. The mission of the Wright Fellowship is to promote a more patient-centered, consumer-driven health care system. Dr. Goodman’s Health Policy Blog is considered among the top conservative health care blogs on the internet where pro-free enterprise, private sector solutions to health care problems are discussed by top health policy experts from all sides of the political spectrum.

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2 replies »

  1. “Could a politician ever win an election by promising to raise taxes and cut benefits for seniors?”
    Hypothetically…Yes. If the demographics were right (Young and very affluent), it is possible. Of course, not likely since these demographics are so small and scattered throughout the country.

  2. In this case, I don’t think the politicians are to blame. They are doing exactly what the (older) electorate is asking for: more money for seniors/retirees/veterans and less taxes to pay for these programs. As the country’s demographics get older, it is only going to get worse. Could a politician ever win an election by promising to raise taxes and cut benefits for seniors?