Suddenly, and a decade too late, the press is buzzing with talk of state and local government bankruptcies.  State and local governments face a lost decade due to debts and retirement obligations, run up by privileged members of previous generations so they could have a better deal, according to the Wall Street Journal.  “Besides the near-term crisis, the other similarity states have with the old GM is an overhang of debt. Between 2000 and 2008, state debts—distinct from other municipal debts—almost doubled to about $1 trillion, according to the Census Bureau.” The burden of this debt has been masked by low interest rates, but these cannot be expected to continue. New York State, particularly New York City, is near the top in debts as a share of its residents's income.

“The bigger issue is retirement obligations. Like GM, many localities have struck generous deals with public-sector workers. In part, this reflected a desire to appease unions with promises for tomorrow that didn't have to be paid for until well after the next election. In a new study, the Pew Center on the States estimates there was a $1 trillion funding gap on $3.35 trillion of state health-care and retirement obligations as of fiscal year 2008.” The New York State pension system is among the least underfunded, although public services will have to be gutted to keep it that way. But the separate New York City pension system, and the MTA, are among the most underfunded.

Unfunded pension enhancements over the past decade, as in the 1960s, will lead to a repeat of the 1970s. The public employee unions wouldn’t have it any other way. They want us to pay in exchange for nothing. New York's state and local taxes are also number one as a share of its residents' personal income, and going up. In exchange for that, we will be getting less and less.

The only ways out: massive inflation that reduces the value of debts and pensions even as public employee wages are frozen, eventually allowing a restoration of something like services at high tax rates (as in the 1970s), or mass bankruptcies.  The Wall Street Journal reports cities considering municipal bankruptcy under Chapter 9. According to Bloomberg News per Warren Buffett: “If a few communities stiff their creditors and get away with it, the chance that others will follow in their footsteps will grow,” Buffett wrote. “What mayor or city council is going to choose pain to local citizens in the form of major tax increases over pain to a far away bond insurer?”

Or, to put it differently, after the political class turns over (if that is ever allowed to happen, which it may not be), how likely is it that younger generations will be willing to pay taxes even as their children don’t have decent schools, the transit system barely works, the police no longer bother to prevent crime, the parks fill with garbage or are closed, etc.? These are the "choices" we’ve been left -- no choice all.  They made choices, they felt entitled, they took and took and never cared about the consequences. The longer we wait to admit it, the more “vested” “contracts” will be signed guaranteeing benefits for those “at or over age 55,” and the more that will have to be paid for nothing.  Even now, the UFT is looking to allow its current members to retire five years early at 50, after just being allowed to retire seven years early at 55. 

That's all state politics is about -- staying in power so you can grab more before the ultimate institutional collapse. It's too bad everyone was fat and happy while all those debts were run up, and all those pension enhancements were granted. Too late now.

Good thing the political class and the executive class don't require public services and benefits. They get retiree health care and pensions no matter what, so who cares about Medicare, Social Security and Health Care reform. They leave the city and move to the suburbs so their kids can go to school, and build up the credentials to get city jobs. They don't need city and state parks, they can afford private health clubs and vacations. And they don't need mass transit. They drive to parking spots reserved for them by placard, or take black cars. And, or course, public employee pensions are exempt from state and local income taxes, and the capital gains of the rich are exempt from federal and MTA payroll taxes.