A Modest Alternative to a Massive State Pension Bailout

Interviewed by Chris Wallace on Fox News Sunday, New Jersey governor Phil Murphy praises Donald Trump for having been supportive of New Jersey’s health care needs, but Wallace reminds him:

One area, however, Governor, where you haven’t gotten help, either from the president or from Senate Republicans, is on the question of state aid -- federal aid, passed by Congress, signed by the president -- to go to states like yours to pay for, uh, first responders, teachers, and all the services, with the huge revenue hit that you’ve taken because of the coronavirus.  You’ve said this week -- your word -- that if you don’t get state aid, it’s gonna be “Armageddon.”

“That’s a fact,” says Murphy, continuing:

This isn’t about the old legacy stuff, we’ve been taking care of that.  This is about firefighters, police, EMS, teachers at the point of attack, we’re already seeing some layoffs in New Jersey.  We need a big slug of federal, direct cash assistance.

“The old legacy stuff.”  That’s a pretty sly means of referencing New Jersey’s notoriously bloated pension promises that were negotiated and enshrined by generations of corrupt union bosses and state legislators. 

Along with other deep-blue states like Illinois and New York that are also desperate for federal cash, New Jersey’s massive pension obligations have increased the state’s public debt and driven the massive spending deficits leading to the brink of insolvency -- and all of this was going on before the coronavirus pandemic.  The fact that a “big slug of federal, direct cash assistance” might serve as a federal bailout for some states’ public pension systems is the entire crux of this debate, yet Wallace and Murphy managed to almost completely sidestep it, instead suggesting that Trump and Republicans would be heartless to not give states however much money they’d need to keep current public employees fully paid.

New Jersey is currently having no issues paying full benefits to its pensioners, Murphy says, but it simply doesn’t have the money to pay for its current public workforce without a “big slug of federal, direct cash assistance.”  And why might that be?  Obviously, because the state has legislated untenable pension liabilities that have long cannibalized the state’s revenue, leaving scant assets on the balance sheet to pay the public workers who are actually serving their communities today.

Only a fool could be duped by this shell game.  Yes, of course this would amount to a federal bailout of mismanaged and bloated state pensions. 

And it raises an important moral question.  Why should a private worker in, say, Texas, be liable to pay for the horrible financial quagmire that New Jersey union bosses and politicians created in their own state?  What should a taxpayer in Texas have to do with any of that?  Shouldn’t payouts to pensioners in New Jersey be adjusted, or perhaps the salaries for current public workers adjusted to reflect reduced revenue, or furloughs at least be considered to address the state’s lack of liquidity, before demanding that taxpayers from other states pay for the problems that reckless unions and politicians in New Jersey created all by themselves?

What’s on display here is a vivid example of the two Americas that are engaged in an ideological battle that’s been softly raging for decades.  It’s a peculiar battle, because it exists right under our nose, and is waged among more or less similar people who often have similar family makeups, religious beliefs, moral compasses, and social values.

Mark Steyn describes this conflict in his book, After America: Get Ready for Armageddon:

[C]onsider two sixtysomething white-bread Wasps living side-by-side in Yonkers, New York: At Number 27 is a lady who retired from teaching at the local school at the age of fifty-nine and lives on an annual pension of $78,255, exempt from state and local tax, with gold-plated health benefits, and everything inflation-proofed.  At Number 29 is a guy exactly the same age who owns a hardware store, can’t afford to retire, has health issues and crummy provision for amelioration thereof, yet will be working until he dies, while his neighbor enjoys a lavish two-decade retirement that he pays for in taxes.  This is a recipe for civil war…

This arrangement breeds animosity among neighbors living on the same street, much less miles apart within the same state, and it is utter insanity to imagine that this animosity wouldn’t be amplified when the arrangement crosses state lines.  It should be understandable that an oil field worker in Texas who lost his job as a result of the government’s response to the coronavirus pandemic would be angry when he discovers that, not only are certain New York politicians celebrating his having lost his livelihood and his means of providing for his family, but they are demanding that his future tax dollars be spent today to ensure that no teachers (or retired teachers) in New York endure an interruption or a reduction in pay as a result of the government response to the coronavirus pandemic.

But opening the economy is unthinkable, says a gaggle of fully-compensated blue state politicians and media talking heads.  We just need the federal government to come up with more money to pay public workers until our ruling-class betters say that it’s safe to resume our lives.

But here’s a modest alternative to more and larger “slugs of federal, direct cash spending” in order to keep public workers and pensioners in blue states fully paid as the economy continues to be crushed by the government response coronavirus fears.

Let’s stop pretending that American dollars are something we can endlessly confiscate from the future, for deployment in the present, without significant and potentially disastrous consequences.  Doing that is precisely what got these states, with their catastrophically unfunded pension liabilities, in the trouble that they’re in.  Let’s instead hold those broke states, that have recklessly legislated these massive pension liabilities and other “legacy stuff,” accountable, and demand that they manage their outlays in accordance with their local revenues.  They can either work to reduce their expenditures, or they can work to increase revenues by tactically and rapidly opening up their economies, or any combination of those things.  But it should go without saying that New Jersey’s current lack of liquidity, which is largely due to its own fiscal irresponsibility, shouldn’t burden taxpayers of other states with an unfathomable amount of liability.

Now, here’s the most important feature of that approach.  Ask yourself --  if teachers, who are now being fully paid for not fully providing the services that our tax dollars pay them to perform, were asked to join the private sector in tightening their belts and enduring the practical results of an employers’ falling revenues (i.e., reduced hours and pay, lost jobs, etc.), wouldn’t they be more inclined to advocate ending the government’s illogically holistic shutdown of private commerce?   If public-pensioners of these blue states were likewise asked to bear some of the financial burden created by the government’s policy via temporarily reduced benefits or increased taxation of benefits that might allow the state to live within its means, would they not join private business owners and working taxpayers in having a vested interest in opening up the economy as safely and quickly as is humanly possible?

I’m a realist, however, and I have every expectation that President Trump and Senate Republicans will make some provision to rescue these states and their bloated entitlement infrastructures, allocating incomprehensibly large sums of money that we do not have, and further compromising our nation’s fiscal solvency.  If I had to guess, and if recent history serves as any template for the future, you can expect this bailout to be buried in a “fourth phase” of a trillion-dollar spending bill which will be meant to stimulate the markets, highlighting an additional cash payment to individuals, and probably some payroll tax shenanigans for good measure.  As such, you can go ahead and expect this can to be thoroughly kicked down the road, and the socialists’ argument to have every American on the government dole advanced.

After all, if every American (or illegal alien, according to Nancy Pelosi) were able to earn their income from the government, there would be no need for urgency in opening the American economy.  Who needs a dynamic, innovative, and thriving private marketplace, or the risks of encountering viral infections while enjoying commercial freedom of association, or even to work or produce anything of value at all, when our government apparently has endless “slugs of federal, direct cash payments” at our disposal? 

Interviewed by Chris Wallace on Fox News Sunday, New Jersey governor Phil Murphy praises Donald Trump for having been supportive of New Jersey’s health care needs, but Wallace reminds him:

One area, however, Governor, where you haven’t gotten help, either from the president or from Senate Republicans, is on the question of state aid -- federal aid, passed by Congress, signed by the president -- to go to states like yours to pay for, uh, first responders, teachers, and all the services, with the huge revenue hit that you’ve taken because of the coronavirus.  You’ve said this week -- your word -- that if you don’t get state aid, it’s gonna be “Armageddon.”

“That’s a fact,” says Murphy, continuing:

This isn’t about the old legacy stuff, we’ve been taking care of that.  This is about firefighters, police, EMS, teachers at the point of attack, we’re already seeing some layoffs in New Jersey.  We need a big slug of federal, direct cash assistance.

“The old legacy stuff.”  That’s a pretty sly means of referencing New Jersey’s notoriously bloated pension promises that were negotiated and enshrined by generations of corrupt union bosses and state legislators. 

Along with other deep-blue states like Illinois and New York that are also desperate for federal cash, New Jersey’s massive pension obligations have increased the state’s public debt and driven the massive spending deficits leading to the brink of insolvency -- and all of this was going on before the coronavirus pandemic.  The fact that a “big slug of federal, direct cash assistance” might serve as a federal bailout for some states’ public pension systems is the entire crux of this debate, yet Wallace and Murphy managed to almost completely sidestep it, instead suggesting that Trump and Republicans would be heartless to not give states however much money they’d need to keep current public employees fully paid.

New Jersey is currently having no issues paying full benefits to its pensioners, Murphy says, but it simply doesn’t have the money to pay for its current public workforce without a “big slug of federal, direct cash assistance.”  And why might that be?  Obviously, because the state has legislated untenable pension liabilities that have long cannibalized the state’s revenue, leaving scant assets on the balance sheet to pay the public workers who are actually serving their communities today.

Only a fool could be duped by this shell game.  Yes, of course this would amount to a federal bailout of mismanaged and bloated state pensions. 

And it raises an important moral question.  Why should a private worker in, say, Texas, be liable to pay for the horrible financial quagmire that New Jersey union bosses and politicians created in their own state?  What should a taxpayer in Texas have to do with any of that?  Shouldn’t payouts to pensioners in New Jersey be adjusted, or perhaps the salaries for current public workers adjusted to reflect reduced revenue, or furloughs at least be considered to address the state’s lack of liquidity, before demanding that taxpayers from other states pay for the problems that reckless unions and politicians in New Jersey created all by themselves?

What’s on display here is a vivid example of the two Americas that are engaged in an ideological battle that’s been softly raging for decades.  It’s a peculiar battle, because it exists right under our nose, and is waged among more or less similar people who often have similar family makeups, religious beliefs, moral compasses, and social values.

Mark Steyn describes this conflict in his book, After America: Get Ready for Armageddon:

[C]onsider two sixtysomething white-bread Wasps living side-by-side in Yonkers, New York: At Number 27 is a lady who retired from teaching at the local school at the age of fifty-nine and lives on an annual pension of $78,255, exempt from state and local tax, with gold-plated health benefits, and everything inflation-proofed.  At Number 29 is a guy exactly the same age who owns a hardware store, can’t afford to retire, has health issues and crummy provision for amelioration thereof, yet will be working until he dies, while his neighbor enjoys a lavish two-decade retirement that he pays for in taxes.  This is a recipe for civil war…

This arrangement breeds animosity among neighbors living on the same street, much less miles apart within the same state, and it is utter insanity to imagine that this animosity wouldn’t be amplified when the arrangement crosses state lines.  It should be understandable that an oil field worker in Texas who lost his job as a result of the government’s response to the coronavirus pandemic would be angry when he discovers that, not only are certain New York politicians celebrating his having lost his livelihood and his means of providing for his family, but they are demanding that his future tax dollars be spent today to ensure that no teachers (or retired teachers) in New York endure an interruption or a reduction in pay as a result of the government response to the coronavirus pandemic.

But opening the economy is unthinkable, says a gaggle of fully-compensated blue state politicians and media talking heads.  We just need the federal government to come up with more money to pay public workers until our ruling-class betters say that it’s safe to resume our lives.

But here’s a modest alternative to more and larger “slugs of federal, direct cash spending” in order to keep public workers and pensioners in blue states fully paid as the economy continues to be crushed by the government response coronavirus fears.

Let’s stop pretending that American dollars are something we can endlessly confiscate from the future, for deployment in the present, without significant and potentially disastrous consequences.  Doing that is precisely what got these states, with their catastrophically unfunded pension liabilities, in the trouble that they’re in.  Let’s instead hold those broke states, that have recklessly legislated these massive pension liabilities and other “legacy stuff,” accountable, and demand that they manage their outlays in accordance with their local revenues.  They can either work to reduce their expenditures, or they can work to increase revenues by tactically and rapidly opening up their economies, or any combination of those things.  But it should go without saying that New Jersey’s current lack of liquidity, which is largely due to its own fiscal irresponsibility, shouldn’t burden taxpayers of other states with an unfathomable amount of liability.

Now, here’s the most important feature of that approach.  Ask yourself --  if teachers, who are now being fully paid for not fully providing the services that our tax dollars pay them to perform, were asked to join the private sector in tightening their belts and enduring the practical results of an employers’ falling revenues (i.e., reduced hours and pay, lost jobs, etc.), wouldn’t they be more inclined to advocate ending the government’s illogically holistic shutdown of private commerce?   If public-pensioners of these blue states were likewise asked to bear some of the financial burden created by the government’s policy via temporarily reduced benefits or increased taxation of benefits that might allow the state to live within its means, would they not join private business owners and working taxpayers in having a vested interest in opening up the economy as safely and quickly as is humanly possible?

I’m a realist, however, and I have every expectation that President Trump and Senate Republicans will make some provision to rescue these states and their bloated entitlement infrastructures, allocating incomprehensibly large sums of money that we do not have, and further compromising our nation’s fiscal solvency.  If I had to guess, and if recent history serves as any template for the future, you can expect this bailout to be buried in a “fourth phase” of a trillion-dollar spending bill which will be meant to stimulate the markets, highlighting an additional cash payment to individuals, and probably some payroll tax shenanigans for good measure.  As such, you can go ahead and expect this can to be thoroughly kicked down the road, and the socialists’ argument to have every American on the government dole advanced.

After all, if every American (or illegal alien, according to Nancy Pelosi) were able to earn their income from the government, there would be no need for urgency in opening the American economy.  Who needs a dynamic, innovative, and thriving private marketplace, or the risks of encountering viral infections while enjoying commercial freedom of association, or even to work or produce anything of value at all, when our government apparently has endless “slugs of federal, direct cash payments” at our disposal?