State/provincial government debt and bankruptcy

[scottish]

The NYT had a good article on budget problems in Oregon.   Apparently pension liabilities are making it difficult for the government to maintain its infrastructure and services.    It sounds like there are some ridiculously large pensions as well.   https://www.nytimes.com/2018/04/14/business/pension-finance-oregon.html

The governor of Kansas slashed taxes in his state to take advantage of the 'trickle down' theory of economics.   This doesn't seemed to have worked out well,  although it's hard to find a single definitive article that describes the problems.

Another example is the Detroit story.   And I believe there are numerous instances of smaller towns running into financial problems in the US.

Ontario's finances are also a big mess.    One of our politicians was caught bragging that his party had increased the provincial debt by 300% during their latest tenure, and he was proud of them because 'we can afford it'.     

National debt is one thing.   The central bank has some control over federal debt and can make adjustments to the currency to handle ridiculous levels of debt.    However, provinces, states and cities don't have this ability.

What do you guys think would happen if a state or province got itself into serious financial trouble?   Would the federal government step in to help?    Should we move to a more financially sound province if things start looking bad?

[Syonyk]

I fully expect to be supporting my parents, at least partially, because an awful lot of their retirement is in an Illinois pension.  You know, the thing the politicians out there laugh about not funding.

I wouldn't want to live in a particularly insolvent area.  Things like roads and bridges that need regular maintenance are likely to get their maintenance cut when it all comes to a head.

[scottish]

Illinois is over $100B in debt trying to keep up with its pension obligations?   WTF?   I've always been suspicious that we can't afford some of the public sector benefits in Ontario, but I didn't realize Illinois was living it.

[SwordGuy]

We need to abolish public sector pension plans for new public employees, and offer buyouts for existing ones.  And, of course, honor our obligations for existing employees and pension holders.

Pensions are PRECISELY the kind of program that US politicians cannot be trusted to run correctly.   

As for professions where people can be injured in the line of duty, we should instead provide long term disability insurance.   For those very specific (and few) professions where we want to keep people long term, we should pay them enough to convince them to stay.   Or up front fund a retention bonus payable upon X years service, then make the offer for them to stay that long.

[Paul der Krake]

What do you guys think would happen if a state or province got itself into serious financial trouble?   Would the federal government step in to help?    Should we move to a more financially sound province if things start looking bad?

The federal government already provides funds to states at unequal rates, and it certainly doesn't follow the amount of federal taxes the states send to the Treasury. Then there's all the indirect economic support that stems from sticking a military base or other national interest activities in state X instead of Y.

[daverobev]

Inflation, I would imagine. I was just going to say something about Greece and the Euro, as in, at least we don't have to worry about that.. but actually I guess the Federal government is somewhat like the European Parliament and Greece somewhat like a Province.

But, of course, Greece is Greece not Germany. And Ontario is the most populous province and where much of the money stuff happens. So, inflation which is good for the government, and good for Ontario as it would drive down the CAD and increase exports.

I doubt the Bank of Canada would leave Ontario in too much of a pickle, though they might deserve it.

[MarciaB]

Oregonian here, and one who is soon to draw a public pension (PERS). I found the article very interesting (much of it wasn't news to me, but I follow this topic for obvious reasons!).

It's easy for legislatures to "kick the can down the road" on funding the pension liabilities because it's important but not urgent. They've been doing it for years (with no end in sight, sadly).

So lawmakers putting off what they should be doing...and this is just like disaster planning. We need to do it, but just not today. In our case it's the enormous earthquake we are due for (a super scary and beautifully written article on this is here: https://www.newyorker.com/magazine/2015/07/20/the-really-big-one)

So then, putting the cheery topics together - what happens if/when a state has a huge natural disaster which wrecks the state economy? With giant earthquakes (or massive hurricanes I suppose, or catastrophic flooding) you get disrupted agriculture and interrupted manufacturing and reduced tourism and whatnot, plus the burden of all that repairing and replacing of infrastructure...and how is that going to get paid for if the tax base is busted up?

And then how are pensions going to paid for on top of all that?

Scary as hell. But do you know who is going to be okay through all this? The few people getting those giant monthly pension checks ($76,000 a MONTH??). They'll have plenty of assets...

[daverobev]

Yeah. It does make me furious when, during this time of economic prosperity, nobody is actually putting money away (ie, paying off some debt) for a rainy day/decade.

The economy, here in Canada, is doing well. You want to do the big infrastructure spending when the economy needs a boost. I mean - stuff needs doing, so do it (fix the fucking highways). But not reducing the budget deficits is infuriating.

Of course with this election in Ontario you have Conservatives who aren't, rather Populists screaming that they will... eh.. drain the swamp. You have Liberals who are desparate to hold on to power and who will... ah god. Give everyone cheaper electricity by saddling the electricity company with debt, to be repaid.. by the customer... in a few years... after racking up interest on it.

And then the NDP, who I've softened to in many ways, but really will just spend a shit load of cash.

Apparently our local Green is a bit of an idiot, unfortunately. Not a good set of parties/candidates. Not good at all.