End city government pensions
Cities in trouble: Many U.S. cities are hard hit because they promised retirement-benefits they could not deliver. With property taxes down, cities are being squeezed. Camden, NJ wants to shut its entire police force and outsource to the County. Miami declared a state of "financial urgency" for the fourth year. In Stockton, CA, a police chief who lasted for 8 months is drawing a pension of over $200,000 a year; the city recently filed for bankruptcy protection. While tax-payers were not paying attention, mayors made some exorbitant promises to public unions.We're now in a phase where it is clear that many local governments cannot keep these promises.
Bankruptcy can be good: Bankruptcy is a legal way to recognize an untenable situation. It allows people to recognize some losses, and then allows both debtor and creditor to move on. Before bankruptcy, a debtor often tries in vain to meet commitments he cannot meet, instead spiraling into a worse hole. Cities that have made promises they cannot keep, ought to go bankrupt; but, they must learn from their past mistakes.
End city-pensions: It is time to phase out pensions for retired municipal employees. Many of these are lavish compared to private-sector plans which previously bankrupted some large private businesses. Now, most businesses have moved away from "defined benefit" retirement plans, offering "defined contribution" plans instead. There the employer contributes a certain amount toward retirement, but does not make any promises about future benefits. Cities must do the same.
End open-ended promises on behalf of future tax-payers: If a private investment or insurance business wishes to guarantee a pension, for a fee, that's fine; but, cities must stay out of this business. Long-term promises made today have to be fulfilled by tax-payers of tomorrow: by our children. We have no right to bind them in this way. This principle should be extended to any long-term promise.
End long-term municipal bonds: Taking out a loan that will be paid by future tax-payers is dubious. There ought to be a legal limit on how long-term of a promise a city may make. I suggest a 10 year cap. If a city wishes to build a new police station, they will argue that they don't want to taking money from current tax-payers for (say) 10 years, and only have the building after that. However, by the same token, taking out a loan where one does not have to pay anything back, means current residents get a benefit that a future resident must pay for. Consider the egregious plan of Poway School district in California. they took out a 40 year loan, on which payments start after the first 20 years.
Limit the size of municipal commitments: Even 10-year bonds ought to be an exception, not a rule. There should be a cap to all the promises and commitments that a city may make. It should be limited by the total size of their current tax receipts. In any year, the debt servicing cost -- interest and repayment of principal -- should not be more than 20%-30% of their budgets. All financial commitments should be included in these limits: so, if a city leases its court-house on a long-term lease, it should mean they can make less commitments elsewhere.
Summary: Cities have too much leeway in making irresponsible promises. The law should stop this, and force cities into sticking with very conservative financing.
Bankruptcy can be good: Bankruptcy is a legal way to recognize an untenable situation. It allows people to recognize some losses, and then allows both debtor and creditor to move on. Before bankruptcy, a debtor often tries in vain to meet commitments he cannot meet, instead spiraling into a worse hole. Cities that have made promises they cannot keep, ought to go bankrupt; but, they must learn from their past mistakes.
End city-pensions: It is time to phase out pensions for retired municipal employees. Many of these are lavish compared to private-sector plans which previously bankrupted some large private businesses. Now, most businesses have moved away from "defined benefit" retirement plans, offering "defined contribution" plans instead. There the employer contributes a certain amount toward retirement, but does not make any promises about future benefits. Cities must do the same.
End open-ended promises on behalf of future tax-payers: If a private investment or insurance business wishes to guarantee a pension, for a fee, that's fine; but, cities must stay out of this business. Long-term promises made today have to be fulfilled by tax-payers of tomorrow: by our children. We have no right to bind them in this way. This principle should be extended to any long-term promise.
End long-term municipal bonds: Taking out a loan that will be paid by future tax-payers is dubious. There ought to be a legal limit on how long-term of a promise a city may make. I suggest a 10 year cap. If a city wishes to build a new police station, they will argue that they don't want to taking money from current tax-payers for (say) 10 years, and only have the building after that. However, by the same token, taking out a loan where one does not have to pay anything back, means current residents get a benefit that a future resident must pay for. Consider the egregious plan of Poway School district in California. they took out a 40 year loan, on which payments start after the first 20 years.
Limit the size of municipal commitments: Even 10-year bonds ought to be an exception, not a rule. There should be a cap to all the promises and commitments that a city may make. It should be limited by the total size of their current tax receipts. In any year, the debt servicing cost -- interest and repayment of principal -- should not be more than 20%-30% of their budgets. All financial commitments should be included in these limits: so, if a city leases its court-house on a long-term lease, it should mean they can make less commitments elsewhere.
Summary: Cities have too much leeway in making irresponsible promises. The law should stop this, and force cities into sticking with very conservative financing.
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