My Condolences, Govs-to-be

7Nov/100

My Condolences, Govs-to-be

Ah, the aftermath of an election.

In three states: California, Illinois, and New York, the Republican tide did not touch the gubernatorial results. But in short order, the Democrats who won may not feel like winners.

Illinois

Illinois's race had the thinnest margin of the three, and yet the "winner", Gov. Quinn, calls this a mandate to raise taxes. Oooooookay.

So what's up in Illinois as of right now? As noted in a prior post, there are signs of a death spiral -- cashing out of assets. In lieu of scraping up necessary cash, they've been working on =borrowing= the necessary contributions. But it's stalled. It could change, but I'm not hopeful. When the "responsible" move is to put an IOU in the pension fund....this is not a good sign.

As I noted before, Daley is getting out of Chicago right before all the money is gone. Too bad Quinn is too stupid to see the signal. Maybe Rahm will get lucky and find residency requirements preclude him from running. Oh darn.

As part of rough projections by Professors Rauh and Novy-Marx, Illinois "goes Ponzi" within a decade (as John Bury likes to term it, and here are his own projections). Before the election, people knew the state was in a bad position. It still is, and I doubt much will be done with Quinn at the helm. Who wants to bet he'll make it through his entire term?

California
California, living up to its reputation as the land of fruits and nuts, has re-elected two retreads, and neither is going to be able to save California from its self-inflicted issues.

Could California pensions implode? You betcha. They are not in the death spiral that Illinois is. Yet. But there has been bad behavior for the past decades, in terms of goosing the benefits at the pinnacle of the market, right before it collapsed.

Even if California as a state can weather it's bad decisions with respect to retroactive benefit increases and contribution holidays, the municipalities might not do so well. And while there's no official way a state can go bankrupt and drop its liabilities (though they can definitely default on bonds), municipalities can definitely go bankrupt. And stop paying all sorts of bills. Here's a separate projection of when the money runs out.

New York

Part of Cuomo's run-up to governorship in the past year has been a "crackdown on pensions" - he already had the pay-to-play case before he started running in earnest, but then he went trolling for more fraud. Well, he got a few headlines for a few fishy situations of goosing benefits, but on the whole, nothing doing. The problem is it's not fraud that's making the pensions so costly.

Overall

Maybe they can buck up knowing the entire country is bankrupt as well, but the diff is that the feds can monetize their debt, no matter how much that will piss off the Chinese. China has a much worse demographic problem than the U.S. anyway, and at that point may not be paying attention to us.

But I say don't be counting on a bailout. Some people think it will happen. Some note the bailout has already started, in the form of Build America Bonds, but that's going to be running out soon. I wouldn't be counting on continuance. I went to the official source on BABs, and looked at distribution by state. Top 4 issuers in descending order: California (~$30B), New York(~17B), Texas(~15B), and Illinois(~10B). Yes, ostensibly these bonds are for capital projects, but money is fungible in the public purse, freeing up money for stuff like pension contributions.

The problem is when your state has been captured by a single party - the other party feels no obligation to help out, especially when it has just recaptured power in a big way. Texas's bond ratings are pretty good, so they don't necessarily need the help with the interest rate supports BABs bring. Looks like they're issuing those bonds in a rush before the gravy train shuts down.

Because it will.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.