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Tag: Ponzi scheme

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.

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