The thing which is aging is more likely the base of city employees and retirees who were promised defined benefit pensions which were underreserved for and routinely looted, over a period of decades.
Erie, for example, has an unfunded liability of about $90 million against a total annual budget of ~$115 million. (As is typical, the lion's share is police/firefighters.)
Once the city stops expanding, you now have no tax base to pay for all the existing roads needing replacement. All those replacement bills come due: the "aging infrastructure" needs more maintenance.
The annual required contribution is a mere $4.3 million
Their pension is 99% funded. I don't know why you'd bring it up, since it is unrelated to the article.
Fixing pensions won't change the fact that neglectful landlords get rewarded under the current taxation scheme.
Why bring it up? Because cities are special purpose vehicles to fund police/firefighter pensions which have a side hustle in providing civic infrastructure. That's quite relevant to the question of why costs are increasing (because politically powerful people got placated), whether investments in infrastructure will reduce costs (strictly impossible), and whether property developers are to blame for underfunded infrastructure (they do not receive checks from the city every month).
The article mentionedthe county of Erie. And the quote wasn't about any city in particular, just about generic "many older cities".
The city of Erie didn't come up in the article.
"Joshua Vincent’s piece on land taxation in Pennsylvania examines relative tax rates in Erie County, Pennsylvania, finding that property owners in the city of Erie proper pay close to double the taxes that those in many of Erie's suburbs pay."
Let me ask: How were those pension banks supposed to be funded?
The reason I ask is because my state has a defined pension plan for many public workers. The benefits are defined irrespective to how the market performs. We're also one of the highest income tax states out there. Yet the pension is underfunded. No one's been "looting" it. No one takes money out of it for some other purpose. The tax rate simply isn't enough to fund it. And we have a high tax rate.
Whoever designed this for our state did so with the assumption that market returns would be enough to fund it. It never was a plan of simply collecting tax money. They were wrong. The market returns were not enough.
Current retirees are getting their pensions. We just won't have enough for the next batch at current funding rates.
It's gone to court, and the courts have ruled that there are no loopholes: People will get their pensions, no matter what. So now we're dealing with the "no matter what". We have one of the worst high school graduation rates in the country, and the quality of education overall is rated fairly low. Yet, we can't solve that problem with money. Because for the next decade or two, pretty much all increases in education funding are going to fund the pensions. A number of cities are growing, and the mayors are very clear about the problems: They cannot afford more police officers and other similar employees to keep pace with the growing cities - because all the extra revenue they are collecting in taxes is going to fund the retirement funds.
The only solution the courts will allow is to change retirement plans for those just entering the workforce. But we will have to deal with this problem for a few decades where we must increase all kinds of taxes to pay for pensions, and allow the rest of the infrastructure to decay.
There's no cap on the defined benefits for high income folks, BTW. University football coaches, and retired presidents, get a lot of money (at least one of them gets over $70K/month). Of course, these are outliers. The median is under $40K/year.
Defined benefits is a bad idea. They need to switch to defined contributions from employers, and let the investments dictate their pay (and probably give employees more choices for the investments).
The best time to plant a tree was twenty years ago. The second best time is now.
We're still not doing it. Too much public opposition.
That’s the rub here. These liabilities are hanging around the necks of governments that can’t pull a monetary supply lever.
This would make a potential future crisis an actual current one.
See this link for a survey of California issues with pensions. The source is the league of CA cities, so there is some bias but the results are still meaningful and eye opening regarding future mandatory spending commitments.
Having the ability to mint fiat money doesn't mean you can pay for whatever you want. Costs adjust to the amount of money there is.
In the limit case, printing a very large amount of money is the same thing as imposing a 100% wealth tax. It will get you all the purchasing power there is to be gotten... but not more than that. (It will also pretty sharply reduce the absolute amount of purchasing power that "all the purchasing power there is" represents.)
It is possible to actually pay workers what they've been promised and not cause an economic collapse. The issue is gathering the political will to do so.
So under this scheme inflation is perhaps not inevitable, but it is almost certain given the dysfunctional mess that Congress is.
As mentioned in other replies to this thread, there are many potential solutions for the so-called crisis that don't involve reneging on the promises we've made to workers.
https://www.vox.com/2019/2/4/18210370/warren-wealth-tax-poll
Second: Taxing the rich is extremely popular among the people, but not so much within Congress. This may be because the rich are Congress's constituents in a way that the rest of us theoretically are, but in practice aren't.
Third: For this to work, Congress needs to raise and lower taxes, not based on the popularity of taxes, but on the rate of inflation. Do you really trust Congress to make the right decisions at the right time? I don't. I trust them to make the popular decision, not the right one. ("Popular" perhaps more with the rich, but that's not the point. The point is, they're politicians, not economists. They're listening to what's popular, not to the economic data. They're going to mess this up. The Fed is politically independent for a reason.)
It actually does when talking about pre-existing obligations denominated in the currency. It doesn't when talking about most other things, but existing pension obligations are pre-existing dollar-denominated obligations.
Now, the feds monetizing all the underfunded state and local pensions would effectively devalue the dollar, so those pensioners (and everyone else on a fixed dollar-denominated income) would be getting far less than they expect for it, and taxing extra money out of the system to counteract the inflationary effect negates the whole idea of monetizing the obligation in the first place—you might as well just leave monetary policy alone and tax money out of the system to pay for the pensions.
> It actually does when talking about pre-existing obligations denominated in the currency.
It still doesn't. It means you can default while calling the default "inflation". Doing so wipes out all other currency holders in addition to you, but it doesn't mean you met your obligations.
(This is basically the same thing as you're saying, but let's be clear about what it means.)
That's another potential solution. My point was that there are potentially many solutions that do not involve breaking our promises to working people.
Only if it wants to collapse confidence in the currency; a major reason we have an independent central bank is to divorce monetary from fiscal policy for exactly that reason.
Also, while the federal government can do that once if it is willing to destroy faith in the currency forever, that doesn't really have any material impact on state and local government options since they can't direct the federal government to do it.
The issues are threefold:
1) Printing money reallocates wealth to government-chosen winners instead of consumer-chosen winners. This will destroy some wealth. Although, as long as it does not destroy most of the wealth in the country the currency will likely hold. This issue is made complex because the pensioners were promised wealth way back when, but now the question becomes why are today's taxpayers paying rather than the people who made those promises.
2) We don't know who's wealth is being destroyed (although the numbers suggest it is the Middle Class, imo).
3) The incentive structures created by bailing people out are atrocious. There is no way anyone will make hard decisions and change if they are bailed out. The banks did not meaningfully reform in '08. Cities will not meaningfully reform pensions if they are bailed out way. The rot will accrete as resources continue to be directed to people and institutions who have demonstrated that they do not know how to manage them.
It has been doing so, but allowing new dollars to flow into the system has been a policy to avoid deflation that would have occurred without the policy (that is, to reduce the value of the currency in a controlled way), not a monetization of government obligations.
You collapse confidence in the currency not by allowing new dollars to flow into the system in general, but by violating the confidence-building implicit commitment inherent in having an independent central bank, that is, the commitment that monetary policy will not be driven by fiscal concerns.
Currency collapse is extreme inflation; and that goes to the central point - there are a very wide range of numbers between 0% inflation and hyperinflation (20+% numbers).
Government monatisation isn't that much different from any other tax, except for the rather critical fact that nobody knows who is paying it. That makes it the least intellectually honest type of revenue raising, and the most likely to spiral out of control. Bringing it in is a pretty telling indicator that a country is unable to govern itself. It is a terrible idea. But it is unlikely to cause a currency collapse if they print and bail out the pensions. It'll just destroy some wealth.
What numbers are you referring to, exactly?
The Middle Class holds the majority of their wealth in their housing[1]. If they're public sector or over a certain age they have a pension and that's all. You're advocating that we take no action to prevent the collapse of the latter.
>The incentive structures created by bailing people out are atrocious.
We aren't talking about bailing people out, we are talking about bailing pensions out.
>The banks did not meaningfully reform in '08. Cities will not meaningfully reform pensions if they are bailed out way.
After the bailout, the banks swallowed new regulatory burdens, new capitalization requirements, effective caps on their size and interdependence. The Trump administration is unwinding these, not the banks.
Your bet is that the economy will fare better if we let the pensions collapse. My bet is that because the velocity of money at the bottom (where people are dependent on their pensions) is so much higher then that at the top, that the collapse of the pension system will cascade negative effects into the rest of the economy that outweigh the cost of bailing them out.
1. https://seekingalpha.com/article/4116647-stagnation-nation-m...
I am? When did I do that? It is none of my business what happens. I'm not advocating anything to do with pensions.
I'm just pointing out that printing money is a tax, not an immediate death sentence to the currency.
> After the bailout, the banks swallowed new regulatory burdens, new capitalization requirements, effective caps on their size and interdependence.
So we've got a class of people who were trusted with vast amounts of power, and they mucked it up and destroyed a bunch of wealth.
The solution is to keep those people in the hot seat, and put in a couple of new rules?
That isn't a sensible response. When people muck up at that magnitude, they should go broke and be ejected from positions of financial power. Let someone else step up and try being in charge. Cushion the blow on households, sure, but the institutions should not be propped up. Change the rules too if that makes sense, but the important thing is to try out new people.
Absolutely not. I believe that executives at some of these institutions should have been held criminally liable for fraud. I also believe that people with the least amount of power shouldn't be the ones to take a haircut.
You're focused on the moral hazard of bailing out the pension system, but what about the moral hazard of promising a stable retirement income to working class people, signing a contract to that effect, and just having it disappear.
What does that say about the social contract between businesses and their employees, that a corporation or government be able to make a promise and not keep it?
Who faces the consequences then?
The problems are (a) he might just get into debt again, for the same reasons he did the first time; and (b) his brothers and sisters might be upset I gave him $$$ for fucking up, or even decide it's clever to emulate him.
In other words, by paying off something I can afford, I would fear triggering a chain reaction leading to something I can't afford.
What you describe in your family dynamic applies so minimally as to be a strawman representation of the far more complex systems at play governing the dynamic between the federal and state economies.
And pensions are just one way a municipality can take on debt. Even if you force them to lock up savings ready for their employees' retirement, they can still load up on debts with municipal bonds, signing long-term contracts, delaying payments to suppliers, and suchlike.
Have there been any examples where a federal bail-out has been accompanied by legal mandates, and it's been successful?
And even if federal pension fund bail-outs bring with them strict rules that prevent them recurring in the same city, unless you can impose such rules on other cities without giving them bail-out money, you've still got the issue that paying off City A's unmanageable pension deficit will encourage City B, which is struggling with its pension deficit, to make it truly unmanageable to get a bail-out.
[1] https://www.cnbc.com/id/45018432 [2] https://www.bloomberg.com/opinion/articles/2018-04-04/congre...