Uncommon Financial Wisdom

The city of Vallejo in California has declared bankruptcy in order to reconfigure pensions for fire and police departments.  This is the first crack in the giganic shell game that  many cities across the country play.  By giving in to public employee unions demand for unreasonably high pension benefits cities have created an impending disaster.  Cities like Vallejo, which depended on an unusual high amount of real estate transactions and high amount of property taxes to cover the pension plans are finding themselves in crisis.  Is Vallejo the canary in the mine?  We will find out soon.  Just like New York City decades ago, cities need to reign in their public employees unquenchable thirst for pension gold. 

Private firms discovered two decades ago that they had a problem with out of control pensions.  Their fix was the shedding of pensions for 401K style plans that put the risk squarely into the hands of employees.  Are cities the next group to go that way?  Can they afford not to?  Here in St. Petersburg the police department is about to have over 25% of their force head to retirement.  Already in a crisis, will it be able to afford these pensions as they escalate in costs?

It would not surprise me to see a taxpayers revolt along the lines of California’s 1980’s tax revolt over the pensions.  After all, tax payers are asked to fund pensions light years more generous than their own.  How long will they continue to do that?

We shall see, maybe cities will make it through this round of crisis, but will they make it through the next one when the full costs of pensions are being spent?  If I was depending on a city pension I would be getting very nervous over this situation.