The Debt Disaster That Most People Are Still Overlooking

You know about the 1.5 trillion dollar deficit, the 14 trillion dollar debt we’re having a debt limit fight over, and you’ve probably heard, at least in passing, about the 100 trillion dollars (The size of that number is almost beyond comprehension) in unfunded Social Security and Medicare liabilities that we face.

However, the country is seeded with other very frightening debt bombs that you don’t hear all that much about right now….but, just wait and see, you will….

The small city of Central Falls, R.I., appears to be headed for a rare municipal bankruptcy filing, and state officials are rushing to keep its woes from overwhelming the struggling state.

The impoverished city, operating under a receiver for a year, has promised $80 million worth of retirement benefits to 214 police officers and firefighters, far more than it can afford. Those workers’ pension fund will probably run out of money in October, giving Central Falls the distinction of becoming the second municipality in the United States to exhaust its pension fund, after Prichard, Ala.

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…Several other Rhode Island cities are sinking under big debt burdens. Even Providence, the capital, risks running out of cash in September, according to its auditor, and if it scrapes by until October, it must then come up with $60 million for its own municipal pension plan.

Some analysts fear that a Central Falls bankruptcy, and a whiff of other problems out there, could scare nervous investors away from bonds issued by Rhode Island’s other municipalities, perhaps setting off a chain reaction that could push the state itself to the brink. There is a precedent: the last American state to default on its bonds, Arkansas in 1933, got in over its head by trying to help struggling municipalities.

…More recently, when local governments have veered toward bankruptcy – Orange County, Calif., in 1994; Cleveland in 1978 – neighboring municipalities have found it harder to sell their own debt. During the New York City fiscal crisis of 1975, New Jersey suddenly found its bonds harder to sell.

“That type of contagion is what you’re trying to avoid,” said James E. Spiotto, a bankruptcy specialist at the law firm Chapman & Cutler, who is not involved in Rhode Island’s problems.

Pensions, my friends, pensions.

The Democrats have been in bed with government workers and government unions for a long, long time and it has been very easy to promise them exorbitant benefits that’ll be paid off sometime in the future.

Well, unfortunately we’re getting very close to “sometime in the future,” the bills are starting to come due, and the money isn’t there to pay them.

Take Central Falls: They’re going to be paying $373,831 in benefits a head to firemen and policemen who are no longer on the streets. How feasible is that?

Well, the population is roughly 18,000 people. In other words, if you have Mom, Dad, and 2.1 kids, they owe almost $18,000 ($4,444 a head) in retirement costs for 214 people who’ve retired. In other words, that’s in addition to the taxes they pay for garbage, sewage, police, fire, and all the other things they need the city to do. How feasible does that sound in a city where the median salary is roughly $32,000?

See, this is the problem: People talk about what a policeman or fireman “deserves” after a lifetime of service, but that’s not the right figure to be considering. What we need to think about is what people can AFFORD TO PAY. It sure isn’t 4,444 dollars a head for just over 200 people.

You’re going to see this dilemma played out all across the country in the coming years as small towns, cities, and eventually even states default because of the size of their pensions. The first response is going to be, “Let the federal government step in and pay the balance.”

That encourages financial irresponsibility, it’s not fair to the American people, and it will accomplish nothing except moving the debt from the local level to the federal level, where all the money is still going to have to be paid off. This is a huge problem with a lot of consequences and we should make sure that it remains a local problem instead of becoming a federal problem.

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