States' Massive Debt Overload, Some Over $3 trillion in unfunded public pensions:

[amborin]

State Debt Woes Grow Too Big to Camouflage

California, New York and other states are showing many of the same signs of debt overload that recently took Greece to the brink — budgets that will not balance, accounting that masks debt, the use of derivatives to plug holes, and armies of retired public workers who are counting on benefits that are proving harder and harder to pay.

And states are responding in sometimes desperate ways, raising concerns that they, too, could face a debt crisis.

New Hampshire was recently ordered by its State Supreme Court to put back $110 million that it took from a medical malpractice insurance pool to balance its budget. Colorado tried, so far unsuccessfully, to grab a $500 million surplus from Pinnacol Assurance, a state workers’ compensation insurer that was privatized in 2002. It wanted the money for its university system and seems likely to get a lesser amount, perhaps $200 million.

Connecticut has tried to issue its own accounting rules. Hawaii has inaugurated a four-day school week. California accelerated its corporate income tax this year, making companies pay 70 percent of their 2010 taxes by June 15. And many states have balanced their budgets with federal health care dollars that Congress has not yet appropriated.

Some economists fear the states have a potentially bigger problem than their recession-induced budget woes. If investors become reluctant to buy the states’ debt, the result could be a credit squeeze, not entirely different from the financial strains in Europe, where markets were reluctant to refinance billions in Greek debt.

“If we ran into a situation where one state got into trouble, they’d be bailed out six ways from Tuesday,” said Kenneth S. Rogoff, an economics professor at Harvard and a former research director of the International Monetary Fund. “But if we have a situation where there’s slow growth, and a bunch of cities and states are on the edge, like in Europe, we will have trouble.”

California’s stated debt — the value of all its bonds outstanding — looks manageable, at just 8 percent of its total economy. But California has big unstated debts, too. If the fair value of the shortfall in California’s big pension fund is counted, for instance, the state’s debt burden more than quadruples, to 37 percent of its economic output, according to one calculation.

The state’s economy will also be weighed down by the ballooning federal debt, though California does not have to worry about those payments as much as its taxpaying citizens and businesses do.

Unstated debts pose a bigger problem to states with smaller economies. If Rhode Island were a country, the fair value of its pension debt would push it outside the maximum permitted by the euro zone, which tries to limit government debt to 60 percent of gross domestic product, according to Andrew Biggs, an economist with the American Enterprise Institute who has been analyzing state debt. Alaska would not qualify either.

snip

One finding was that countries “can default on stunningly small amounts of debt,” he said, perhaps just one-fourth of what stopped Greece in its tracks. “The fact that the states’ debts aren’t as big as Greece’s doesn’t mean it can’t happen.”

snip
New Jersey and other states have used a whole bagful of tricks and gimmicks to make their budgets look balanced and to push debts into the future.

One ploy reminiscent of Greece has been the use of derivatives. While Greece used a type of foreign-exchange trade to hide debt, the derivatives popular with states and cities have been interest-rate swaps, contracts to hedge against changing rates.

The states issued variable-rate bonds and used the swaps in an attempt to lock in the low rates associated with variable-rate debt. The swaps would indeed have saved money had interest rates gone up. But to get this protection, the states had to agree to pay extra if interest rates went down. And in the years since these swaps came into vogue, interest rates have mostly fallen.

Swaps were often pitched to governments with some form of upfront cash payment — perhaps an amount just big enough to close a budget deficit. That gave the illusion that the house was in order, but in fact, such deals just added hidden debt, which has to be paid back over the life of the swaps, often 30 years.

Some economists think the last straw for states and cities will be debt hidden in their pension obligations.

Pensions are debts, too, after all, paid over time just like bonds. But states do not disclose how much they owe retirees when they disclose their bonded debt, and state officials steadfastly oppose valuing their pensions at market rates.

Joshua Rauh, an economist at Northwestern University, and Robert Novy-Marx of the University of Chicago, recently recalculated the value of the 50 states’ pension obligations the way the bond markets value debt. They put the number at $5.17 trillion.


http://www.nytimes.com/2010/03/30/business/economy/30states.html?ref=todayspaper

[Name removed]

1. Deleted message

Message removed by moderator. Click here to review the message board rules.

[southern_belle]

2. Simple Solution to Debt

Without even trying the Pugs gave us the perfect solution to suit all sides:
(1) Congress people work for a salary of about $174,000 per year - That breaks down to about $14,500 per month
(2) One of the 'spokesman' for the pugs said he will 'not cooperate' for the rest of the year
(3) There were 212 'nay' votes for the health care bill and we can pretty much figure about the same for each bill to come (although I used an even 200 in my figures)
So...
I suggest that we buy each 'hell no' congress person a DVD; Then we buy a DVD player for each the House and the Senate. By my unresearch figures we would initially spend about $500.
Now, each of the 'hell no' congress people would record there 'Hell No" vote with a minute or two of the reasons why they object to the bill. (That should be really really easy as the Pugs are famous for repeating almost word-for-word objections.)They would send this in as each vote is called for - They do not even need to attend. The Congress people that are really working for the people would play the objections at the appropriate time and all votes will be recorded.
Now for the results of this change:
(1) I know of no other business that would keep on an employee that refused to work - However because its the government I suggest that we put the "Hell No's" on unpaid leave for the next 7 months which would free them up to work undisturbed for their 2010 election in November. Best of all though, this would save us over $20 million dollars and an untold amount of time. It also would allow the real working Congress people to accomplish things which would better this country.
The over $20 mil could be used for bettering communities throughout this country or ???

[Hubert Flottz]

3. Okay but...

What's the good news?

[southern_belle]

4. Obvious Answer

Sorry I did not explain it well! My view is that we, as Dems, could accomplish things much quicker and 'take in' over $20 mil plus with which to attack financial woes while the Pugs will have to work harder and harder to show how relevant they are. I believe enough in the American People to believe they will recognize which party is finally getting something done. Especially when benefits begin opening up.
(I posted this tongue-in-cheek)

[onethatcares]

5. I see Florida is not included in your chart

is tht because the public sector pension fund is already in the red there?

Here in Floriduh, we have three people that oversee the pension fund, and they are all running for office at this time. The St.Petersburg Times asked them why they didn't have a clue as to what was going on, and amazingly enough, in this election year, none had an answer. I believe they never even responded to the question. They would be Charlie Christ, Governor, Alex Sink CFO for the state, Bill McCollum (?) Attorney General.

We're supposed to trust these people? WTF???