Public sector employees are at risk of hearing these words due to state government mismanagement and union irresponsibility. Blue states like Rhode Island are leading the way over the cliff. Rhode Island has a $14 billion unfunded pension and health-care benefits liability to state and municipal employees and retirees. To pay off the liability, it would require every man, woman and child in the state to take a $14,000 hit. Rhode Island’s Central Falls, lacking the funds to pay pension costs, has already announced its intention to cut municipal retiree pensions by up to one-half.
This is just the beginning of a crisis that is sweeping across America—a crisis with no ready solution. You see, states, unlike the federal government, simply cannot crank up the money printing presses to cover spending shortfalls, as President Obama and Fed Chairman Ben Bernanke have been doing. States with revenue shortfalls must either go to the citizenry or sell municipal bonds. But in today’s environment, citizens are tapped out, and lower and lower credit ratings and investor confidence levels are making bond sales a tough sell. I for one would not touch a municipal bond offered by a state without a right to work law on the books. RTW laws put a stranglehold on unions. Click to my Liberty & Freedom map at richardcyoung.com for a visual on all the RTW states. Needless to say, you will not find Rhode Island or any other New England blue state on the list. Nor will you find blue state violators California, Washington, Oregon, Illinois, Michigan, Pennsylvania, or New York.
With unemployment continuing at recession levels and home foreclosures mounting, individual Americans are in tough financial straits. Hard to believe, but in metropolitan Phoenix, two-thirds of all residential mortgages are underwater. In many states, real estate is in such bad shape that new construction has virtually ground to a halt. And guess which state is in the worst shape when it comes to new building permits issued? Rhode Island ranks as worst in America, with Illinois, Michigan and New York also on the dubious distinction list. It is thought that over 50% of all homes sold in Nevada are in some stage of foreclosure. In California, foreclosures represent as much as 45% of home sales. Hard to see the construction industry fueling a job-growth recovery.
I read recently that one-half of Americans could not raise $2,000 in one month. That’s a little short of the $14,000 each Rhode Islander needs to pay for the state’s unfunded liabilities. Under union pressure, many states have promised pension and health-care benefits that will not be paid. Americans are under-saved, under-invested, under-employed and over-indebted. In short, a big percentage of Americans are tapped out and insolvent. Look, how insane is it that a state would promise a municipal employee who joined the workforce at 22 years old retirement with a pension at age 42, after only 20 years of work? Can you imagine such a thing in the private sector? Not on your life. For decades, municipal workers, city and state bureaucrats, and the unions have been living in dreamland. Now, one by one, clocks are being punched. Doomsday has either arrived or is scheduled for arrival. Coming up, I will detail for you exactly how municipalities got into such a mess and what can be done about the fiscal disaster that is now at the doorstep of so many states.