Len--thanks for sharing this. What are the next steps i n your view--and others-- to turn Oakland government around so that we can solve some of these problems? I agree city council members and city staff need to step up--and we won't succeed in deferring problems year after year.

Len - thank you for the article.

Susan - we need to start by reforming Fed/State/Local pensions.  This pension problem isn't unique to Oakland.  Look at almost every state and city in America, most have budgets that are bursting under the weight of these pensions where the government employee pays little to nothing toward their own retirement.

It is imperative that we completely revamp the government retirement system.

Until then, almost nothing we can do.

I don't think that this is a useful discussion; it looks like just another neocon anti-government, anti-union rant to me. And it's really not worth a substantive reply.

I will just ask a few questions: who elected these foolish City Council Members? I would guess Senor Raphael doesn't vote. What was the political context of all those foolish union contracts and unreasonable benefit awards? I guess Senor Raphael wasn't paying attention way back when.

I will point out the fact that incomes for working people have been in relative decline for about 30 years while the super-wealthy have become even more super-wealthy. We have been living in a money-obsessed culture which has distorted all sorts of values, including those of Senor Raphael.

Senor Raphael's analysis places a lot of blame, but offers not a single practical suggestion for moving forward towards solving the problems he sees. Anyone can complain and point fingers and this may make people like Senor Raphael feel better for 30 seconds. But it doesn't go anywhere and discourages real problem-solving.

The complexity of the pension problem, particularly at the state level, is discussed in an article cited below. The character of the discussion is well beyond the purview of the ilk of Senor Raphael, Rush Limbaugh or Glenn Beck.

http://finance.yahoo.com/focus-retirement/article/109867/in-budget-crisis-states-take-aim-at-pension-costs?mod=fidelity-livingretirement

Mike - the money isn't there, no matter who is speaking. 

In principle I am pro-union, but nothing is sacred, least of all inflexible rigidity and structural rot.

There is plenty of blame and not plenty of money to go around as you know, but to say that unions are 100% angels and "pure" and that we have tons of wealth somewhere to redistribute is fallacy.  No one wants "equal rights" everyone wants special treatment and benefits.  Look at how SUVs and SIVs aree marketed and you get the picture.  Sure, the top 1% (nobody posting here) has maintained their 1970s American lifestyle.

The rest of us are now Cambodians.  If not us, our children and theirs.

The pension bomb will explode in everyone's face whether we want it to or not. Wishing for other solutions (ie raise property taxes on homeowners/ businesses/ etc) won't fix this.

The whole world's "wealth" was built upon a cheap and easily accessible fossil fuel edifice which is now more than 60% burned away.

We can't unburn coal and oil and uranium which built us our modern Western industrial civilization.  What do you propose Mike?

You sound like a city employee or otherwise a union beneficiary to say what you are saying.

I work for a city now too, and do NOT want to be part of the union but have no choice.  They co-opted me, and provide NO benefits to me, and TAKE  MY MONEY without my permission.

Often hear residents tell me to stop criticizing the pay and benefits of our city employees because we all deserve to be paid similar amounts.

Usually they go on to say that we should first be fighting : Goldman Sachs, Big Oil, Capitalism, Republicans, Prop 13, (fill in the blank here).

It's arithmetically impossible to perform income redistribution by paying wages and benefits at the local government level because the taxation powers are not and never were available at the local level  to accomplish that ambitious a goal. Arguably they exist at the fed and state govt. levels.

That has not stopped Oakland’s unions and city council members from in effect trying to do that off our backs.

End result is a financial house of cards that breeds resentment and division between middle and poor residents,  and provides mediocre services to rich and poor alike.

-len

I would support our city taking drastic actions to resolve the unsustainable pension obligations we are saddled with. The piecemeal approach city council has made the last two years makes me more angry than just making the tough, ugly and difficult decisions we are going to have to make sooner or later to diffuse this debt bomb.

What the decisions might be I don't know - filing for bankruptcy or exploring other, even more drastic solutions, that other states and municipalities are attempting. Please see this article in the New York Times from last week for some more ideas - 

http://www.nytimes.com/2010/06/20/business/20pension.html?scp=2&sq=pensions%20and%20retirement%20plans&st=cse

Len,

Thanks for this.  Good stuff.  I appreciate the systemic overview.  All the other press on this issue is about who's fighting with who.  You're writing about system failure.  Much more enlightening.

Susan,

The specific programs and departments  which I think have to be cut, or taxes to possibly be increased are much less important than the process in which those decisions are reached.

The process will take months because the budget is complex, many people's lives are affected, we have to try to reach consensus to minimize fighting among different groups of residents.

The condescending attitude of our elected officials from our Mayor and every council member boils down to "Trust us to lead to you into the future".

They tell us that all we need to know about the budget is that little pie chart showing the percentage of the total General Fund taken by public safety costs.

They don't bother to give residents the data and tools to examine the assumptions underlying their budget recommendations. eg. it's been pointed out that the CC has failed to produce their calculations for number of cops needed to be laid off under different scenarios. Don't trouble your pretty little heads with the numbers.

Even the CC's own creation, the Budget Advisory Committe has not had a quorum in almost 6 months. If the CC and Mayor were serious about listening to residents wouldn't you think they'd have found replacement members who would show up at meetings? (full disclosure, I volunteered  a few months ago but was told all positions had been filled)

Several years ago CC passed a law requiring 5 year budgets to be prepared. Amazingly, they omitted to specify effective date of the law. So two years ago, they put in the start date (2010), but JQ tweaked the law so that the 5 year budgets only have to be revised every two years.

That's dangerous considering how fast state and even federal financial situation affecting Oakland is changing.

This crisis was an approaching freight train that took  3 years to get here, but  council members waited till three weeks before their deadline to "ask"  residents to help them decide what to cut.

From the recent community budget meetings and their pronouncements, I'd say Mayor's office and CC members are more interested in framing the discussion to fit their priorities and tactics, then they are in hearing what residents want.

They want to hear from us  that it's ok to play the dangerous game of bluffing the cops into taking very large cuts on short notice.

They want cya protection if the cops call their bluff and chose layoffs. 

My hunch is that if that happens CC will come up with some bogus balancing line item like selling all the city's copy machines to the Redevelopment Agency for 20Mill combined with a minimal concession from the cops. They'll call off the layoffs at the last second and declare victory until the next crisis occurs three months later.

The last thing that CC members want to hear is that residents want a long term approach that combines massive cuts to all employee compensation without layoffs. And don't even suggest that non profit organizations receiving city contracts should limit the salaries and perks of their executives, let alone submit to performance audits of how effectively they spent our money.

That we would consider tax increases after those compensation cuts are made but we want them coordinated with the tax increase OUSD will need even after it makes big cuts. We want assurance that as soon as times get better, they don't toady to the unions and non profit community organizations which support their re-election campaigns, by giving them unaffordable compensation and retirement raises, and program funding allotments.

A long term approach would force the CC to figure out how to fix the compensation Frankenstein they created over the past decade.

-len raphael

temescal

"You sound like a city employee or otherwise a union beneficiary to say what you are saying."

NOT! I've gotten government checks only during two periods in my life--in the military and working for the post office while in college. My working life has been in small private enterprises and in nonprofits.

My point about Senor Raphael (and his cohort) is that his perspective is purely nihilistic--he appears to believe in nothing and have no respect for the way democracy works. As Twain put it democracy is a horrible system of government and all the other systems are worse. 

Senor Raphael offers not the least practical, feasible suggestion on how to proceed from here. We all, as a polity, have made some mistakes. That's what people do. Reasonable people learn from their mistakes and move on. That's what we need to do.

Nilhilists like Senor Raphael can only savor wallowing in their negativity. They do a very good job of criticism and so they draw lots of attention from other immature people.

The problem is how to move forward. You don't move forward by blaming others, failing to take responsibility for your own stupidity (yes all humans are stupid at least some of the time and yes human progress implies the progress of stupidity) and not actually doing something. You learn by doing, not by constantly finding new topics to complain about.

Not sure how many got the robocall from OPD's union rep the other day but it sure helped me make up my mind as to where I stand. The shear unreality of the call is what angered me. Not only is our city in a financial crisis but we are in the worst recession in 70+ years and yet all the union has to say is that they better get what they want or chaos will reign. I want to see the OPD pay into their pension. This alone will not solve our problems but it is a start. 

I am not averse to paying higher taxes in return for better city services. But I will not support any new taxes of any kind until there is public sector pension reform. As Len as spelled out the pension structure we have is unsustainable. I will not support any new taxes to pay for these bloated pensions. 

How we get there is the question. Does Oakland file for bankruptcy like Vallejo? Does Oakland take even more extreme actions like the city of Maywood did in southern California and essentially shut down all city services and then contract out life and safety to the county? I don't think we will have pension reform unless Oakland takes drastic action.

As for OUSD - They need to close schools and possible even start selling off property before asking for more tax money. A very controversial decision to say the least. Here is a link to a recent article in the Express about this very issue - 

http://www.eastbayexpress.com/ebx/oakland-unified-has-too-many-schools/Content?oid=1725235

Appreciating the comments here.  Len, I think your points about Oakland failing to follow through on due process and be complacent match some of my own observations of how government operates here.  Mike, I agree that sounding blame isn't enough, but I also know how frustrating this is for many, who stand by and feel not heard.  John, I wonder whether Oakland isn't going to end up declaring bankruptcy--which is a scenario I need to learn alot more about.

What concerns me is that I don't yet have a sense factions are cooperating, unions are working for the good of the people in the city, and that the problems have concensus about ways to resolve--instead, there's lots of playing chicken and calling a bluff--and that isn't going to get us where we need to go....This is where I feel the much talked about lack of leadership--but also recognize how complicated these issues are.

len, your perspectives are refreshing.  I have come to some conclusions based on a lot of hard research that echo your last statement.  "End result is a financial house of cards that breeds resentment and division between middle and poor residents, and provides mediocre services to rich and poor alike."  Either we move or we correct what needs correcting.  I am not ready to move.  One thing that needs correcting is the size of CEDA.  Did you know they have more than 400 full-time employees and as many contracted temps?  They are building inspectors, inspection services managers, planners, urban analysts, development project managers, etc. It's simply excessive for a city of this size with the income disparities it has to have such a huge commitment to salaries and unrationalized programs.

Please take a look at www.auditoaklandceda.com

John: "Does Oakland file for bankruptcy like Vallejo?"

Municipal bankruptcy cannot solve any problems for Oakland. Unlike certain types of private bankruptcies, cities' debts are not discharged but remain liabilities. What is likely to result would be a city government in Oakland which is even more incompetent and inefficient than at present, run essentially by the management decisions of a judge. Bankruptcy is not a feasible alternative in any guise I can understand. In Vallejo, with a significantly reduced police force after bankruptcy, crime is way up.

Susan: "This is where I feel the much talked about lack of leadership."

Exactly. We've got an absentee mayor and a City Council which just does not know how to get things done. The citizens need to step in with some what I would call moral suasion.

And there are lots of civic groups in Oakland which are working very hard to try to get the City Council and the Oakland Police Officers' Association, among others, to act responsibly. The problem is that several of these groups don't have much of an existence in cyberspace. So you've got to turn your computer off and go outside to learn about what is going on.

By the way the looming finance problems of public-entity (not to mention corporate) retirement programs is nothing new.

If you can't get way from your computer screen, then do a little Googling about pension program finance problems. Does the name "General Motors" ring a bell?

Susan: "I agree that sounding blame isn't enough, but I also know how frustrating this is for many, who stand by and feel not heard."

I suggest that you be very wary of allowing Oakland Local's writers and commenters to become dominated by the whiners. One complaint, no matter how pertinent, is never enough for some of these people. The negativity drives away thoughtful readers and other concerned people who have a real life away from the internet.

A balance of perspectives is what makes a lively website. I can think of several political websites which I once found interesting and now avoid because of the pervasive negativity and lack of useful insight. Somehow the negativity breeds more negativity.

I've gotta stop being so negative about all those nihilists. So I am going to turn my computer off.

A few weeks ago I would have agreed with Mike that filing for bankruptcy was not going to help Oakland, except to the extent that bankruptcy would be a useful threat to be made by candidates and citizens loud enough to motivate unions to renegotiate vested and unvested retirement benefits.

Best indication that bankruptcy might be more effective than Mike opines is the concerted effort by unions to push a law thru the CA legislature making it impossible for cities to file for bankruptcy without the approval of the state.  In April ? that law passed the CA Senate.

Can’t use Vallejo as proof that bankruptcy won't help Oakland. Vallejo declared bankruptcy because they were insolvent. They ran out of cash to make payroll and pay their bills.  Insolvency is a requirement for Chapter 9, muni bankruptcy. But that wouldn’t be that hard to achieve if city council stopped it’s frantic juggling act for several months.  It will occur in a few years without any effort when the baby boomers start pulling their retirement medical benefits, Calpers “smoothing”  hits the rough stuff, or the bond markets don’t let us play the pension bond hedge game next year with our pre Calpers 400Mill obligation.

Vallejo is a very strong union town because many of its residents have ties to the old Mare Island Shipyard unions. Residents were very loath to hurt union members. As a result, Vallejo did not push the envelope of bankruptcy in any sense because it's elected officials (especially after the last election) didn't have the stomach to do so.

As a result they lost much of the advantage of bankruptcy and gave their public safety employees raises that could drag Vallejo back down into bankruptcy court.

In the last few weeks the legal atmosphere has started to change. Article in the NYT's a week ago described how Colo was testing the  federal law to see if it overrode state law on public pensions, including vested benefits.  NJ was thinking about it.  Enterprising bankruptcy attorneys smell big fees from cities and states if they win. (http://www.nytimes.com/2010/06/20/business/20pension.html?pagewanted=2&adxnnl=1&ref=pensions_and_retirement_plans&adxnnlx=1277353112-nKXA5AdeRyeMoT8/eclO6g )

People following that most closely are muni bond investor sites.  Eg. http://www.bondsquawk.com/tag/municipal-bankruptcy/

In just the last few days, the San Diego grand jury issued a report urging the city to consider bankruptcy for the same type of unvested medical retirement obligations and possibly vested retirement obligations that Oakland has. Amounts involved are two to 4 times the size of ours. But that’s hard to quantify because much of our pension obligation is thru Calpers which hasn’t quantified our portion publicly yet.

(http://www.sdcounty.ca.gov/grandjury/reports/2009-2010/SDCityFinancialCrisisReport.pdf )

Skim to about page 14.

The report uses the word “unsustainable” two times referring to their retirement obligations.Some of the recommendations are selling parks, outsourcing libraries, and most relevant to Oakland combining county and city services. I don’t see any alternative to that happening here with Oakland, San Leandro, and Hayward and possibly more cities with the county over the next 10 years. The cost of maintaining separate fire, police, tax collection depts. etc. is prohibitive.

The most startling part of the report discusses bankruptcy. Page 17.

 “Fact: At a seminar hosted on Oct 22, 2009 by the San Diego County Taxpayers Association, the federal bankruptcy judge who presided over Orange County’s bankruptcy was joined on the panel by two experienced bankruptcy attorneys.

Fact: A speaker at the seminar said that municipalities are not required to raise taxes or cut costs to the bone before filing for reorganization under Chapter 9. In Orange County, to avoid filing a bankruptcy petition under Chapter 9, the County had earlier proposed a tax that the people voted down.

Fact: It is still untested whether or not the vested rights clause pertaining to pension benefits prevails in bankruptcy proceedings

SAN DIEGO COUNTY GRAND JURY 2009/2010 (filed June 8, 2010) 18

FINDINGS  

Finding 26: A proactive dialogue as to the efficacy of a Chapter 9 reorganization cannot be removed from any discourse as to the City’s financial health.

Finding 27: A Chapter 9 filing would result in a federal determination of which fringe benefits and collective bargaining agreements could be restructured. “

A few days ago, the San Diego grand jury issued a report recommending consideration of bankruptcy for SD because it has retirement obligations similar in size to Oakland's. SD's credit rating has not collapsed since that report was issued. However, there was another city whose ratings dropped big time when one of their officials announced he was looking into B filing for the city.

Supposedly that report has a good summary of the current legal opinions on that.

Keep in mind that Chapter 9 would not free up tax revenue and fees that are restricted to paying back dedicated bonds. I don't know if Chapt 9 would reduce or allow delay in repayment of interest on those bonds. I do know that our bond holders could not seize our assets the way secured creditors would in business and personal bankruptcies.

My understanding is that our relatively small amount of General Obligation bonds could be wiped out in Chapter 9.

I would think that a partner from Orrick, the law firm doing Vallejo would be  happy to write an authoritative explanation of how Chapter 9 would operate here. Don't know that they'd be as happy to explain the dark side of the several hundre million of pension obligation bonds which they pioneered for Oakland, about 15 years? ago. Those are the bonds that come due next year and look much like a loan on an "underwater" Oakland condo.

-len raphael

Parcel tax arithmetic.

Our mayor, city council members, all the union reps, and most non profit community orgs, pray the residents will understand the wisdom of higher parcel and sales taxes.  I actually agree that we will have to raise taxes.

The question is when, how much, and how will the money be used.

In this posting, I'll discuss the how much piece. By my back of the envelope calculations, we will need a parcel tax or equivalent sales tax increase, of close to $600 per parcel unit just to cover our current pension and retirement medical obligations,  repair our deteriorating public roads, buildings, storm drains, and recreation areas.

Wildly guestimating, we'll need to present that tax as a package deal with an OUSD parcel tax of 200/parcel unit.

Can't forget  OUSD because even though legally separate from the City, the success of this city is dependent on improving  OUSD.

We have to present the parcel tax increase as a package deal to the voters so one doesn't crowd out the other.

ie. at least an $800 parcel tax will be needed so that we can continue to provide services while supporting our city retirees in the style our city council has promised them and themselves.

Since that's a hecka lot of a large burdern for many homeowners and tennants to bear, there will have to be extensive low income and low net worth exemptions. Also costs of administering those exemptions. So maybe $900 to 1,000/parcel unit for non-exempt owners and pass thru tennants.

Unfortunately, that $900 to 1,000 does not cover any of our current operating deficits. Those will have to be covered by cuts in pay and retirement benefits, and programs. Not by layoffs, not by furloughs that cut service.

Parcel taxes of that size could reduce property tax assessments. Or maybe if the city provided quality services and schooling, it might be a wash or better.

Boring details and assumptions:

Measure Y raises about 20Mill/year from an average of about $90/unit-parcel. (lower for multiple residential; formula for commercial). that wb 222,000 parcel units

Using the same method of taxing multiple residential and commercial, say we want to fund the 400M for pre calpers and the 600mill of med benefit for retirees. over say 15 years. probably have to assume we stop those benefits from accruing going forward.

ignoring both increases in medical costs and possible investment gains, 1Bill divided by 15 years divided by 222,000 parcel units = $300

Not sure how much to throw in to cover increased Calpers’ “smoothing” for investment losses. Maybe 15Mill/year ? for next 20 years. Not sure how much to add in for using 4.8% investment return instead of their current 7.75%. So say 30Mill/year indefinitely divided by 222,000 parcels = 135/year per parcel unit.

That bring us to $435/year additional parcel tax, not covering current operating deficits.

Next add in a wild gustimate that we need only 200/parcel unit to fund our infrastructure deferred maintenance. eg. non ADA (wheelchair access etc) sidewalk repairs, potholes, repaving, street overpasses, city buildings etc.

That $200 could be very low.

Total additional parcel taxes of 435 + 200 = 635/year per parcel unit. Assumes that we balance our current deficits without raising taxes.

If OUSD manages to half it’s current 85Mill deficit to 42Mill, they’ll need an additional parcel tax of about 200/parcel unit.

An earlier posting mentioned CEDA which brings up an interesting question. Large swaths of Oakland are also "redevelopment zones" that use increment financing to raise funds for those specific zones. That is as property taxes go up, the redevelopment zone gets this increase while the city only gets the base amount that the taxes were set at when the zone was established. How much money is tied up in these zones? Granted the state "borrowed" from these funds last year but how much is left? Can a city rescind a redevelopment zone freeing up the money collected so it can be used by the General Fund? 

Here is a link to a map showing all redevelopment zones in Oakland - 

http://www.business2oakland.com/main/redevelopment.htm#Section_2

It is shocking how much of the city is in a redevelopment zone of one kind or another. How much money is locked up in these zones? 

Good question re CEDAs""How much money is locked up in these zones? "

For those few readers who may want to consider themselves social liberals or progressives--there is plenty of waste in the California state budget which does not require scapegoating unions generally.

Just a couple of examples which come to mind:

A failed, bloated prison system, packed with nonviolent offenders and "perpetrators" of victimless crimes like smoking a joint who are mostly young men of color. Annual state budget chunk: $8 billion and not doing much of anything to reduce real crime. Crime in Oakland? It's the police union's (OPOA) fault.

Transportation: a billion or so in state funds and many billions in Fed funds. Still doing things like the new Caldecott Tunnel, a project right out of the 1950s. Hint: reduce driving demand a little bit and you don't need the 500 million dollar tunnel. Because of our huge "latent demand" to drive anywhere, anytime, any new road construction gets gridlocked within a year of completion.

'nuff said.

John, there are two points of view on Redevelopment zones. One is that they consume the tax revenue increases which should be going to the general fund to pay for the services which helped make the area prosper and are needed even more as the area develops.

The other viewpoint is that if it weren't a Redevelopment zone, all that the city would get would be it's normal  (i haven't fact checked this) something like 15% of the total property taxes from that zone, including that normal percentage of any increase due to development success. The rest of real estate taxes goes mostly to the State; with a bunch coming back for OUSD.

So you could say that 15% of the increase is much better than 0%, but if the RDAgency operates effectively so that the area prospers, there would be transfer  and business taxes that would go 100% to the general fund, a portion of sales tax as well.

Look at the past few budgets, including the latest and greatest, and you'll see that council members find ways to shift costs from general fund to the RDA; and they sell city property to the RDA knowing that since they control the RDA, they're really just borrowing some of the RDA's money interest free.

My vague understanding is that RDA gets cash by issuing bonds and pays the bonds back with the "incremental" tax revenue. I'm sure there are legal limits on their borrowings. Don't know if there's a sunset provision or if the cc has to dismantle the zones. There is a CA RDA website devoted to such topics.

Have heard that most of Hercules is still a zone.

In the past,  council members have salivated at the chance to expand the zones. Brunner once mentioned expanding to Temescal.

-len raphael

Len - I was at the meetings when Brunner and city staff presented turning north Oakland into another redevelopment zone. It was ugly The idea was dropped. I tend to agree with the view that redevelopment zones consume tax revenues that should be going to the General Fund. It seems that in California redevelopment zones have lost their original purpose and are now just viewed as another way to generate revenue. How else to explain most of Oakland being in one redev zone or another. Frankly I think one of the reasons that councilmembers want redev zones is that the funds generated by the zone need to be spent in the zone. Just another way to fund pet projects of councilmembers in my opinion. 

Got a 4-color glossy flyer in today's mail from the SEIU Local 1021 asking me to help protect basic services. I would be more impressed if they hadn't spelled the name wrong of the "Dimond Branch Library." There is no "a" in "Dimond". It would be nice if they had taken the time to actually proofread the flyer and know the name of the neighborhood whose services they want my help protecting.

John,  I overlooked that basic requirement that the RDA money be spent within it's district. Must be that i've been spending too much time reading city budgets that seem to charge more and general fund expenses to RDA.

Watching the cc meeting tonight. The unions are showing solidarity on one thing: increasing taxes on residents.

Sad to see all the community organizations and the city employees get up to fight to push the cops to take 10% cut in compensation and say how hard their 10% furloughs are.

They do appear to be clueless that in a year two they will alll have to give up another 20% or more.

Apparently the words "structural defecit" are city council code words +1Billion of unfunded retirement obligations. Desley Brooks, bless her, hit the nail on the head and voted no on the budget because it ignored the "structural deficit" and relied on one time tricks and optimistic assumptions to balance.

Nadel and Brunner and IDLF seem to be on anti-depressants as they cheerfully agreed with Brooks.

Nadle went on about how the world economy is so uncertain, that we'll have to keep adjusting the balance every few months and concluded that we can't do 5 year budgets because of the uncertainty   I'd say that's exactly why you do prepare short and long term budgets and review them frequently.

IDLF went on a bit and then obliquely corrected Nadel and Brunner by saying something to the effect "we will probably have a deficit next year and we all know what's coming in the years after that".

I interpret that to mean that the cc members know we're in very deep financial doodoo that could easily lead to bankruptcy or massive layoffs, but have agreed not to discuss it too much in front of the residents and employees  because the kids might get very angry.

-len

NPR interview with Richard Ravitch, the guy who worked on NYC's financial overhaul in the 70's, and several other muni finance crisis since is a New Deal democrat, LBJ Model City, and union supporter kinda guy.  His conclusion is that starting several years ago muni and state spending and spending commitments starting growing much faster than tax revenues. 

(http://www.thisamericanlife.org/radio-archives/episode/410/social-contract)

State and city elected officials throughout the country papered over those "structural deficits" with one time accounting gimicks, borrowings, selling pubilc properties.

He was asked by the now Governor of NY, a Democrat, to propose a solution for NYS. His suggestion was two pronged: one was to require that  the state government report its financial results and budgets the same way for profit businesses do, so that all retirement obligations and revenues and expenses are accrued when incurred, not waiting till paid. He also insisted on strict controls over spending growth and borrowing.

He allowed that borrowing would be needed at this point because of the huge deficits facing NYS, but he wanted the borrrowing strictly limited and supevervised. If he spending limits were violated, he would prohibit further borrowing.

The Republicans opposed his proposal because he recommended borrowing.

The Democrats opposed it because he wanted spending limits.

Neither party liked his accounting reporting methods because it would prevent their smoke and mirrors accounting methods.

End result. NYS will "borrow" the money to pay its retirement fund contributions from its retirement fund.

His obervation is that most politicians at state and local level want to believe that we are only in a temporary tax revenue "rough patch". Politicians refuse to accept the reality that over the past 5 or more years spending by state and local govts has grown much faster than tax revenue. 

His reluctant conclusion is much like Bill Clintons, and not so different from Obama's actions: that we have to get by with less from government.