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Another Day Older And Deeper In Debt

The wide-awakes over at CTMirror have noticed that things in Connecticut and the nation are not peachy keen.


There is talk of a double dip national recession. Should the nation slip further into economic uncertainty, all the states in the union, Connecticut among them, will suffer. According to important indices, the nation has crawled very far out on the debt limb. A $14 trillion federal budget deficit is not pocket change, and the $14 trillion in red ink does not include unfunded liabilities.
Here in Connecticut, Governor Dannel Malloy hopes the state budget is in the black, but there are doubters. Mr. Malloy tapped into tax payers’ pockets to discharge nearly half of a $4 billion deficit, and the balance was extracted from union concessions and assumed savings. But here too, Connecticut’s budget deficit represents only part of the state’s financial obligations, just as the national deficit is only a small part of federal liabilities.

The unfunded liability of Connecticut’s pension system is reported at $16 billion, an amount nearly as large as the state’s entire annual budget. Other analysts compute the state’s real unfunded liability at three times this amount. It is impossible to wring money out of an empty wallet. Sober state and national governments, mindful of their budget deficits and unfunded liabilities, should realize they cannot afford to continue to support such debt levels. On both federal and state levels, however, big spenders are simply hooked on spending. The notion that federal and state governments can spend their way out of recessions is one of the undying fables of poorly remembered recessions of times past. .
The 2009 SocialSecurity and Medicare Trustees Reports indicated that the combined unfunded liability of just these two programs reached $107 trillion, about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt. And times have not improved since 2009. It cannot be said often enough that these two programs draw upon current tax collections to finance both present operations and an ever growing unfunded liability. Both programs are pay as you go operations; there is no till, other than taxpayers’ pockets, from which the federal government may draw to pay down accumulated debt.
At a minimum, these liabilities suggest that while the federal government is not in a position to bail out Connecticut, neither is Connecticut in a position to be able to assume more debt. President Ronald Reagan, one of the best aphorists in the modern presidency, put it this way: “Government is like a baby: an alimentary canal with a big appetite on one end, and no responsibility on the other.”


Even though the figures are -- to put it mildly -- depressing, Panglossian optimists are everywhere. Office of Policy and Management Secretary Benjamin Barnes, Mr. Malloy’s budget director, has not battened down every hatch against the coming storm.
"I'm pretty confident,” he has said, “that the steps we've taken will allow us to sustain balance over a long period of time.”


This was offered as a sufficient answer to well-founded misgivings expressed in the CTMirror story. The concession package negotiated between SEBAC, a coalition of unionized state workers, and the Malloy administration lacks “an out-clause to cope with fiscal emergencies.” The absence of such a clause, in combination with “a four-year prohibition against union worker layoffs” and a guaranteed three year raise following a pay freeze of two years, will leave the state in a precarious position should national and state finances bend towards a double dip recession, as seems likely.

Even Mr. Malloy’s predecessor, the much derided “Snow White” governor, was not so incautious as to remove from the gubernatorial tool box a provision that would have allowed additional cost-saving measures should state revenues fall below a threshold level or should the budget dip below a manageable deficit floor. Mr. Malloy has committed himself to a no-layoff pledge and a 9 percent, three year increase for SEBAC union members who voted in favor of his revised Plan A budget. These contractual commitments could be an expensive pay off should the national and state economies continue to founder.
In a possible prevision of things to come, the iconic U.S. Postal Service announced over the weekend it is insolvent, has no cash on hand to meet its contractual obligations with unions and may shut down this Winter.


According to a New York Times report:

“…decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs. Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors. Postal workers also receive more generous health benefits than most other federal employees.”


It would be wise to make provisions against the approaching winter of our discontent. Mr. Malloy will need an armory of weapons to meet it, and optimism is a blank cartridge.

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