When politics trumps financial common sense

I hope readers in New York State are prepared for what's coming down the pike at them in the next State budget. It promises to be a right royal shafting for all residents of the Empire State. As the New York Times reports:

Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund.

And, in classic budgetary sleight-of-hand, they will borrow the money to make the payments to the pension fund — from the same pension fund.

As word of the plan spread, some denounced it as a shell game and a blatant effort by state leaders to avoid making difficult decisions, like cutting government spending or reducing pension benefits.

. . .

Pension costs for the state and municipalities are soaring, a result of enhanced retirement benefits for public employees and the decline in the stock market over the past two years. And, given declines in tax revenue and larger budget shortfalls, the governments are struggling to come up with the money to make the contributions.

Under the plan, the state and municipalities would borrow the money to reduce their pension contributions for the next three years, in exchange for higher payments over the following decade. They would begin repaying what they borrowed, with interest, in 2013.

But Mr. Paterson and other state officials hope the stock market will have rebounded to such a degree by that time that the state’s overall pension contribution burden will have been reduced.

The maneuver would cost the state and local governments about $1.85 billion in interest payments, according to an estimate by the State Senate, though a number of factors could drive interest payments up or down.

Another oddity of the plan is that the pension fund, which assumes its assets will earn 8 percent a year, would accept interest payments from the state that would probably be 4.5 percent to 5.5 percent.

. . .

The governor and legislative leaders are under pressure to make structural changes that will bring new discipline to state spending, but few expect them to do so.

Instead, they are expected to rely heavily on borrowing, tax or fee increases and an array of one-time maneuvers, like tapping the coffers of public authorities.

There's more at the link.

The most basic, fundamental truth of economics is that you can't spend money you don't have. All that this maneuver will accomplish is to provide billions of dollars that the State of New York still doesn't have. They're 'theoretical dollars', not actual cash in hand - but New York will spend them as if they were real, saddling future taxpayers with billions more dollars in debt.

Will someone please tell me why these clowns weren't thrown out of office by the New York electorate a long time ago? And can anyone give me even one reason why they shouldn't be kicked out at the next election?

I can only suggest that New York State politicians be treated as I've already suggested for any Federal Government Congresspersons and Senators who voted for the multiple bailout packages over the past couple of years. If your elected representative votes for this measure, then at the next election cast your vote against him or her, and for their opponent, irrespective of their political party affiliation. You couldn't possibly do worse, and you might even end up with someone better.

Gah! Politicians!





Peter