November 8, 2011

Me Versus the Rally

Justin Katz

I'll be on the 5:00 and 6:00 evening news broadcasts on ABC6 talking about my analysis of public pensions that are higher than the salaries from which they grew. I got the impression that I'll be presented in opposition to the pro-high-pension rally that the unions are hosting, today.

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run for office, man! I'll donate my free time which is plenty!

Posted by: bob at November 8, 2011 3:38 PM

"I'll be on the 5:00 and 6:00 evening news broadcasts on ABC6 "

Cool!

Posted by: Monique at November 8, 2011 6:47 PM

The whine of the privileged class:
"No Retirement By 40-
No Peace!".

Posted by: Tommy Cranston at November 8, 2011 7:34 PM

I am interested in both arguments. Although I believe the politicians that got us into the pension mess are both venal and reprehensible, I do not see how the taxpayers are not bound by contract. They were hired with the understanding of pension benefits,they have performed their half of the contract (or, at least, put in their time), must we not hold up our end of the bargain. I do not see where cost to the taxpayers is an issue, that was known at the outset. This is not heartening, but I think my reasoning is correct. I do not see how our current legislators can simply "swear the poor debtor's oath" and take French leave of our creditors.

I do not hear any call for current state employees to accept less, or of defaulting on state bonds, in order to free up funds for a prior public obligation. Although, I suppose, anything is possible in politics, I think our elected representatives have fully cooked our goose.

It may be that the politicians will find a "loophole" that permits the presently desired result. They may simply do it by fiat, and fight in the courts later. I suspect that close examination of such a "loophole" would arrive at the result that it was dishonorable. Let's face it, we elected those people, the facts were known to anyone who cared to know, and we re-elected those people. We have "run out of other people's money", but we are not innocent.

Posted by: Warrington Faust at November 8, 2011 9:10 PM

Warrington,

I think we can pretty clearly assert that the cost was not known to the taxpayers. I mean, our government, with heavy (almost dominant) input from labor unions was predicting over 8% returns on investments while realizing much less.

This is where things get really tricky with respect to democracy: I never agreed to pension arrangements, and it can't even be reasonably suggested that I had any input in any pension arrangement made before about ten years ago. If forcing me to pay for them becomes too much of a burden, I'll just pull up stakes. I'm using myself representatively, here; the principle applies to the entire RI economy.

Posted by: Justin Katz at November 8, 2011 9:28 PM

Warrington - The terms of the contract have become unconscionable. How does the law treat unconscionable terms in contracts?

Posted by: Dan at November 8, 2011 9:39 PM

"I do not see where cost to the taxpayers is an issue, that was known at the outset."

And another question is, did we already pay that cost, but the money went into the black hole otherwise knows as the "General Fund" and then ended up in other appropriations? If I have an implied contract with the state by my living here and the deal is that the pension situation will cost me $x and I pay that, but then the politicians take that money and decide to create and fund a new program and not properly fund the pension system, is that my fault? Should I have to then pay more?

The bottom line is yes, I will. The real problem is we can't go back after the politicians who knowingly and willingly screwed this up.

Heck, how many of them are there still collecting pensions?

Posted by: Patrick at November 8, 2011 9:43 PM

I do not see how the taxpayers are not bound by contract.
When you promise more than you have, even through a contract, you don't gain a right to go seize the difference from someone else.

Posted by: Andrew at November 8, 2011 10:33 PM

Dan, Pat, Andrew all of your comments are indictments of the politicians who created the situation, I don't think they go to the heart of the matter. Still, it was done democratically and publicly. The terms have not "become unconscionable", these are the same terms that were originally agreed to. What has happened is that the state's income has been reduced. Such an event was reasonably foreseeable at the inception of the contract. Some money has been squandered, but if so, it was done publicly by duly elected representatives. Representatives we repeatedly re-elected. I think that means we endorsed their activities.

Compare this to any private entity which has had it's income reduced and has squandered their capital. Frequently, they do renege on their debts. This is usually a stopgap before bankruptcy. It is cause for an involuntary bankruptcy.

That subject coming up, municipal bankruptcies are permitted, and might be useful in this instance. So far as I know, there is no ability for a state to enter into bankruptcy. Here's a thought, a trust for the benefit of creditors/Assignment for the Benefit of Creditors. That is a, non-judicial, Common Law procedure, essentially an informal bankruptcy which does not require compliance with bankruptcy rules (in actual fact, the terms of the trust usually track Chapter 11). They were fairly common in the "Great Depression", they do not necessarily require the consent of the creditors. As with a class action, non-consenting creditors can maintain a separate action. As a practical matter, the unions would probably choose that route. If the assignment were well thought out and accepted by a majority of creditors, all sorts of Common Law principles, such as "Marshalling of Assets", come into play. A suit by a single creditor, of equal priority with others, might not go very far. Battling over priorities might go on for years. Too bad they don't teach Common Law in the Law Schools anymore. There is a 1000 years of experience with these matters thrown down the drain. I haven't seen an Assignment put to use in 20 years, I think basic rules of equity would require every creditor of the state to take a hair cut. It can be different by "classes", there is that priority question again. I don't think "general obligation" creditors of a state (pensioners) would have any particular claim on specific assets. I suspect "revenue" would be a specific asset.

I don't know exactly how this might be worked out, but at least it is "honorable" as there is no particular victim. "Everybody gets treated the same". The pensioners would still get something, but everyone would get less. I don't have an answer off hand about whether the employee contracts might "come back to life", they might unless they were renegotiated (politicians). Without a Bankruptcy Court ruling, contracts cannot simply be abandoned by one party.

Posted by: Warrington Faust at November 8, 2011 11:30 PM


Congratulations Justin,on your consultancy position! It's wonderful that all of your hard work is being recognized and rewarded.

Judging by some of the responses in the Projo to the article which referenced you,you have already ruffled quite a few feathers. God love you and thank you for using that God given clarity of yours for the public good.

Posted by: helen at November 9, 2011 1:43 AM

"my analysis of public pensions that are higher than the salaries from which they grew."

Why does anyone seemed surprised at this? Do you think that the unions cannot do arithmetic? Did no one in the legislature take a Community College course on the "Arithmetic of Finance".

There are any number of on line calculators that will tell you how long it would take a 3% COLA to double $45,000. Even the "Rule of 76" will tell you that it is 25 years. 4% makes that about 19 years. So, retire at 50,or 55, and you are in pretty good shape.

The results are egregious, but let us not pretend surprise. "It was all in the numbers".

These things were known to everyone who cared to know. We simply chose not to face them, sort of like no one on either side of the abortion debate will acknowledge that Roe v. Wade was the primary cause of the sharp decline in crime which began in 1990.

Posted by: Warrington Faust at November 9, 2011 2:16 AM

Warrington,

We don't have a government that owns society. We don't have a government that has the power to give one group of citizens a permanent and unchanging claim on the livelihoods of others, and for the government to privilege a single class of citizens makes no more sense now with public sector unions than it did at the times when it was kings and noblemen being placed ahead of everyone else. Indeed, 300 years ago the aristocracy would have made the same "we're the most important group for keeping society functioning, therefore we come first" argument that the unions are making today.

When it comes to municipal contracts, this limitation on how much of the public's future livelihood can be "promised" by the government was written directly into Rhode Island law (you can start by looking at 28-9.4-5)...

No contract shall exceed the term of three (3) years.
By my math, promising a COLA 30 years from now is a contract term that exceeds 3 years. But somehow, the unions have managed to convince lots of people (beginning with their own members) that their contracts are above the law and not subject to the government or laws of the representatives of the common people.

Posted by: Andrew at November 9, 2011 8:39 AM

Posted by Andrew:

"Warrington,

We don't have a government that owns society. We don't have a government that has the power to give one group of citizens a permanent and unchanging claim on the livelihoods of others"

Social Security, Medicare, Disability, I don't see the difference. They are all unending claims on the public treasure which our governors have bound us to.

Please don't misunderstand me, but everyone knew it was coming. Just as everyone knows Social Security will go belly up.

I am amazed at the number of people who are "shocked" and want to demonize the unions. Our elected representatives did it and we ratified it by re-elecitng them, time after time. there is no need to look elsewhere to place the blame. The pensioners were offered a good deal,and they took it. Who wouldn't?

"No contract shall exceed the term of three (3) years."

I don't know why a 10 year bond is not a contract. What are the terms of leases for state office space (I have heard of states where that is enforced, everyone just nods and knows the leases will be renewed)

Posted by: Warrington Faust at November 9, 2011 6:45 PM

Warrington, I have to honestly say that if you don't see a difference between social security and public sector pensions, you are not paying very close attention. Government can change the Social Security retirement age, or alter its COLA formula, or completely eliminate the COLA, or end the system entirely tomorrow, and there's no claim that "benefits can't be changed, because plans have been made". Government can change what is covered in its various health insurance plans, and no claim of "you can't change beneifts, because it breaks an implied unilateral contract" will be entertained. Everyone working over-the-table in Rhode Island pays into a temporary disability fund, just like state employees pay into a pension fund, but if the state decides it's going to change what it pays out, there's no claim of "benefits can never be changed, once you've paid into the fund for a certain time". In none of those programs are payouts considered permanent and unchangeable.

I'm no more "shocked" than you are that when government gives one group of people a supposed right to make permanent, unchangeable claims on the future incomes of others, the privleged group takes advantage of it, and the system gets thrown out of balance. That's why the practice was discontinued in modern democracy and shouldn't be resumed.

Posted by: Andrew at November 9, 2011 9:53 PM

Posted by Andrew:

"Warrington, I have to honestly say that if you don't see a difference between social security and public sector pensions, you are not paying very close attention. Government can change the Social Security retirement age, or alter its COLA formula, or completely eliminate the COLA, or end the system entirely tomorrow"

I admit, there may be a distinction with a difference in the examples I cited. Much would be determined by the governing documents. Social Security was a political gift, it is doubtful that the recipients had much input when the system was established. I somehow doubt this was the case when the pension law was established. I am sure the unions were able to obtian preservation language in the law. That is what they are paid, and probably paid out, for.

Please don't misunderstand me, I think it is a bad system. But, I don't think we can simply walk away from it because we don't like it anymore. We have voted ourselves into a mess. Now that the cat is out of the bag, I don't think we can simply walk away from it.

Posted by: Warrington Faust at November 10, 2011 10:12 AM

```Me Versus the Rally
Justin’s title is the perfect description of the conservative mindset. It’s Me against the world. Poor Me—misunderstood—vilified -but also so much smarter and better than everyone else. Not like the herded masses—that’s the description of everybody but me. No chance at finding common ground. No chance at any compromise. We conservatives are just too special—so sure of ourselves we derisively call other people elitists. So cocksure and self satisfied that we don’t want our conservative beliefs to become mainstream -- we want the reflecting pool to be uncrowded.

Posted by: David S at November 10, 2011 9:20 PM

```Me Versus the Rally
Justin’s title is the perfect description of the conservative mindset. It’s Me against the world. Poor Me—misunderstood—vilified -but also so much smarter and better than everyone else. Not like the herded masses—that’s the description of everybody but me. No chance at finding common ground. No chance at any compromise. We conservatives are just too special—so sure of ourselves we derisively call other people elitists. So cocksure and self satisfied that we don’t want our conservative beliefs to become mainstream -- we want the reflecting pool to be uncrowded.

Posted by: David S at November 10, 2011 9:21 PM

Umm, no. The title of the post is my tongue-in-cheek play on the impression that I got from the reporter that I would be standing in for "the other side" in a report about the rally.

As a general rule of thumb, you can be confident, whenever I use a phrase like "me versus," that my palpable inadequacy to uphold one end of the battle is foremost in my mind.

Posted by: Justin Katz at November 10, 2011 9:38 PM


David S.,

I can speak only for myself. There is no room for compromise when liberty is at stake. There is no room for compromise when there are those who would gladly vote to violate my rights.

As one of our country's founders said,the Constitution will only work for a moral people. Using the force of government to take from some to enrich others is not moral. It is not moral to force by government decree the moral standards of the country. It is not moral to use government force to make people purchase something,with severe penalties for non-compliance,even if one cannot afford the mandate,such as thenew health care law does. It is not moral to tax people out of their homes.

Posted by: helen at November 10, 2011 11:23 PM

"Justin’s title is the perfect description of the conservative mindset. It’s Me against the world. ...
we don’t want our conservative beliefs to become mainstream "

Actually, it's a perfect description of Smith Hill. Any legislator who is even right of center (much less conservative) very much is in a teeny, tiny minority, taking on a progressive, spend-aholic world and trying mightily to make fiscal restraint "mainstream".

Posted by: Monique at November 11, 2011 8:23 AM

teeny, tiny minority,


1%?

Posted by: phil at November 14, 2011 5:42 AM
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