Bailout has been a hot word for the past several years. It is usually pretty straight forward. United States taxpayer dollars given to companies or banks to keep them afloat. In the case of cities, it takes on another form. Some people suggest the city of Detroit is owed a bailout. After all, two of the car companies were given the life preserver.
A while back Stockton California filed for bankruptcy. That city of 300,000 was the largest municipality to take such action at the time. Stockton was heavily indebted to bond holders and was proposing that those holding the notes should take a greatly reduced payoff.
In case you didn't already know this, cities and towns pay for things by selling government bonds to finance projects like road improvements or other infrastructure. In some cases maybe a new sports facility. They are usually backed by the "full faith and security" of that issuing city.
The person buying that bond gets regular interest payments and the promise of full repayment at the end of the bond period. The last number I heard was just under $4 trillion in government bond liability was owed by cities in America.
Now, that Stockton news may not have meant too much to people outside California. After all, it doesn't really affect all of us, does it? Like many cities, they continued to cave in to employee unions by offering higher pension promises, better benefit packages and even shorter work time required to qualify for those "entitlements."
It was great political capital. It practically insured election and reelection. And after all, those payments wouldn't be due for years down the road. Surely property values would continue to go up. So property taxes would continue to rise. Surely companies would continue to add full time workers in the private sector. Those earning ordinary income which is taxed at the highest rate would offset the wildly out of line local government benefit packages. Surely?
Detroit became the largest city to seek bankruptcy protection. So far. They cited massive debt, in part due to pension and healthcare benefits due to retired city employees. These concessions were approved years ago. It was great political capital and at the time those required payments were years away. Surely things would be fine when the bill was due. Surely?
In many areas, this Detroit news may not seem very important. After all it doesn't affect people in other parts of America. Does It? Maybe, if the bailout is veiled under another taxpayer funded program.
Here in Michigan, pension guarantees are supposed to be protected by law. Not so with previously negotiated healthcare. It would appear as though that may be the norm in most of the cities in our country. However recent rulings may have cracked open that pension protection as well. As I write this update on October 1st, 2015, the courts have made those pensions fair game in bankruptcy proceedings.
The numbers I've seen suggest that there may be over 65% of the pension obligations funded. If we assume those numbers to be fairly accurate, which may be a misguided assumption, that still leaves the overall shortage at over half a billion dollars. That is the good part. Which suggests how bad the "bad" part must be.
The number set aside for healthcare benefits is under 10%. Not a misprint. I didn't mean to type 70%. No, cities and towns in America have set aside under 10% to pay those healthcare concessions from contract negotiations held years before.
So what will they do? In the case of Detroit, they state that their healthcare benefits are unaffordable. No kidding? They were unaffordable when the deal was struck. The plan to solve that part of the problem is really fairly simple. I don't know if it will come together, but be assured that cities throughout America are watching closely. There are many more municipalities teetering on the edge for the same reasons Stockton and Detroit fell. And they are looking for a similar way to dump part of their massive debt.
If we assume that the majority of Detroit retirees are living on pensions and social security, they could be forced into those new exchanges mandated by Obamacare. There they would receive government subsidies. The ones already over 65 could be sent to Medicare. Another federally subsidized program. You do realize "federally subsidized" means tax dollar funded.
Presto! City officials will be able to boast about taking care of their people. A large portion of that debt was shifted off their books. Of course if it was shifted off their debt load, it had to go on to the bill of someone else. And you've already figured out whose ledger it landed squarely upon. That would be the United States taxpayers. A bailout?
If this works in Detroit, it will be the preferred method of operation in many other cities. Maybe not as direct as a bank bailout, but in the end, it is more drain on the income circle of all Americans. I guess it does affect us all!
Other than the back room dealings and sheer arrogance of many of the congress members in Washington D.C., this tax payer ripoff at the state and city level sets the standard for abuse of public money and of outright fraud.
Another example of stealing tax payer money has gone on in Illinois for years. In an article from the Chicago Sun-Times, you'll read an amazing story of that state's taxpayers being systematically ripped off by government employees as they enter the final years of their tax-funded "work."
In this link, you'll read how long time employees receive significant salary increases in their last year on the public dole. This is important because their pensions are tied to that final year salary total. This is one of those stories that leave you shaking your head, while wondering how and even why, taxpayers of that state will be forced to pay for this crony capitalism.
In many cities around the country we see instances of government employees being able to move from position to position and collect large pensions, even with very limited job time. We see managers and counsel members setting up large payments upon retirement. Curiously, many seem to be set up just prior to someone who pushed through the measure retiring. A coincidence, I'm sure.
Cities are being forced to cut services to residents because they cannot come close to meeting past obligations. As I stand on the edge of the coin, to see both sides, I recognize the plight of many retirees. They count on that agreed upon pension for survival.
I have no sympathy for those who have manipulated an already corrupt system for their own gain, at the expense of the generation who will follow them.
Illinois as a whole and Chicago in particular are bogged down by incredible debt. It will take some forceful action to solve these problems. And some financial pain. Deep pain-even with a bailout. They have dug a monstrous hole..
We suggest books to help you understand how money works. We present authors who will help you protect more of what you have earned. The reasons are brought into focus when you really think about how events across the country and the world will affect us.
This is part of our mission statement at books-empower.com. Robert Kiyosaki presents some excellent ideas about this topic in his book "Why "A" Students Work For "C" Students And "B" Students Work For The Government."
The examples in this page are a perfect lesson in how recognizing an opposite event clarifies an honest direction. I've linked this page to our "Teach Your Children Well" section, found in the left margin.
Our next generation must be aware of how their financial futures will be affected by events and decisions in which they had no part of such decisions, but will be stuck with both the bill and the reduction in services. They will pay for the bailout.
When I write about applied ethics, I could just suggest that you do exactly the opposite of these people who have violated the public trust.
But instead, I'll ask for a little more. I'll ask you to become involved and help squash these tactics. It may seem daunting. It may appear impossible.
But with ballot box power, anything is possible.