Who’ll Pay for an Underwater Pension Mortgage?


Although some Internet sifting didn’t reveal their state-by-state list, leaving Rhode Island’s standing as an unknown, Rob Arnott and Lisa Meulbroek’s warning in the Wall Street Journal is worth consideration:

Most cities, counties and states have committed taxpayers to significant future unfunded spending. This mostly takes the form of pension and postretirement health-care obligations for public employees, a burden that averages $75,000 per household but exceeds $100,000 per household in some states. Many states protect public pensions in their constitutions, meaning they cannot be renegotiated. Future pension obligations simply must be paid, either through higher taxes or cuts to public services.

As I’ve noted repeatedly, government investment boards get away with unrealistic investment assumptions because their financial advisors and actuaries accept that the ability to increase taxes allows for higher risk, and Arnott and Meulbroek note that this power ultimately flows to one tax in particular:

State taxes are collected on four economic activities: consumption (sales tax), labor and investment (income tax) and real-estate ownership (property tax). The affluent can escape sales and income taxes by moving to a new state—but real estate stays behind. Property values must ultimately support the obligations that politicians have promised, even if those obligations aren’t properly funded, because real estate is the only source of state and local revenue that can’t pick up and move elsewhere. Whether or not unfunded obligations are paid with property taxes, it’s the property that backs the obligations in the end.

Thus, the authors say, the pension debt is like another mortgage on our homes.  (For Millennials with big education debt, it’s arguably a third mortgage.)

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In some states, perhaps the resolution will weigh more in the direction of justice — hitting the honey pots of the politicians and labor unions that inflated this suffocating balloon.  In states like Rhode Island, though, we’d best come to grips with the reality that, more and more, we’re working for the benefit of the government, not the other way around.  What we owe on our government bill already far exceeds the value we derive, and that’s only going to get worse.

  • Justin Galt

    “What we owe on our government bill already far exceeds the value we derive”…what are you basing that assertion on?

    • Justin Katz

      My considered opinion based on our demonstrably high taxes, our demonstrably low quality of service, and anecdotal experience.

      • Justin Galt

        I would suggest your opinion is based more heavily on anecdotal experience and much less on the “demonstrably”, but thank you for your honesty.

        • Justin Katz

          There really is no disputing that Rhode Island has a high tax burden, and bad roads and bridges, mediocre education at a high cost, the UHIP debacle, and so on are all well documented.

  • Rhett Hardwick

    Nonsense, there are plenty of “shortcuts”. I see twice the number of guys on a job as necessary (when job is done by local highway dept). They could be doing two jobs in the same time. “prevailing wage”, stop work and “wait for the inspector”, onerous “details” that the contractor has to pick up (in Vermont they use what appear to be welfare mothers rather than police), being required to fill an excavation and re-excavate the next day, instead of steel plating it (if you cross someone from the city, maybe refusing to pay a large “detail”), the list goes on and on for anyone with experience in the road trades. I’ve known road contractors who have had guns “shown to them” by union officials. They refused to work in RI after that.

    • Mike678

      Obviously a union man. People vote their own self-interest.

  • Chip

    We are suckers because we put up with this. SUCKERS!