Buffalo, NY – California has often been known as a bellwether state. It typically is on the vanguard of changes that later sweep the rest of the country. With the dire financial straits that the state finds itself in, we can only hope and pray that the Golden State is not a precursor of what life may look like for the rest of America.
What seems to undergird California's latest financial crisis is the fact that the public wants a raft of services, but vehemently resists paying for them. This is a common theme in many states. It is not so much that the public is clamoring for program cuts, as they are looking for someone else to pay for the programs that they favor.
Despite the fact that the global financial system has hit the wall, many government sponsored "entitlement" programs continue to grow at what most observers consider to be unsustainable rates. If there was one thing we as a nation should have learned from the bankruptcy filing of GM, it is that a flawed business model will eventually blow up. It may take some time, decades in the case of GM, but unsustainable models will eventually implode. It seems as though the business model of unrestrained government spending, as well as public sector domination of the government budget process, may be the next paradigm to unwind.
Public sector unions refuse to back off of their "negotiated" pay packages, even in light of an economic drop that thus far compares favorably with the beginnings of the Great Depression.
Over the past year, the public has yet to realize that although their retirement accounts may have been reduced by a third due to the vicissitudes of the market, their well pensioned public servants will notice not a dime's difference in our promise to maintain their pensions. As a state, we are going to be collectively taxed an additional $44 billion to make up the shortfall inour state employee's pension fund.According to the state Conference of Mayors, most taxpayers will see a 10% increase in their property taxes in order to fully fund the pension system by 2011.
One of the primary reasons that we are not seeing a massive pushback from the tax paying public is that we are the beneficiaries of a two year stimulus program from the federal government. Once that aid is withdrawn, which by the way will coincide with the need to raise taxes to cover the pension fund shortfall, the public sector dominance over the budget process may begin to crack.
By the way, federal, state and municipal pensions continue to be exempt from NYS income taxes even as we are in the mother of all fiscal crisis I wonder why that is? We will all know that business as usual is changing in Albany when this outrageous perk is rescinded.
As unemployment continues to increase, we may witness a role reversal that has been a half-century in the making. The public may finally rebel against the concept of lifetime benefits for any "servant of the people." In an environment of increasing unemployment, discouraged workers who have exited the workforce, furloughs, underemployment and forced part-time employment, the justification for rich benefit packages for the public sector will appear increasingly outrageous to a public whose economic dislocation may reach 20% - 25% before our economic problems begin to recede.
The unions are a problem, but they are not the whole problem. Until we stop electing politicians who promise us bigger programs without identifying how we are going to pay for those programs, nothing will change. We have the power to change the way the public's business is conducted; but we have to be willing to face the truth. Only that will set us free.
Listener-commentator Anthony Ogorek is principal of Ogorek Wealth Management in Williamsville.
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