Will the taxpayers be left holding the Pension Deficit Bag?

Have you been “left holding the bag“?  This expression is generally used to describe a situation wherein a person or persons create a problem and then leave others to deal with it.  According to Grammar Girl,  there are different shades of meaning – “this idiom grew out of an earlier expression from about 1600: to give one the bag. That expression referred to someone being left with an empty bag after everyone else removed the good stuff.”

We all know what it’s like to be left holding the bag – empty or full – but I wonder, how do you all feel about the bag being handed to your children? This is what City of Chico staff are trying to do – hand their pension deficit bag to our kids.

The other night I took in a Chico Parks and Playgrounds Commission meeting to hear a pitch for a sales-tax-to-secure-bonds scheme that Ass City Mangler Chris Constantin has been pitching for months. Constantin describes a trick by which he can use the additional sales tax revenue to secure bonded debt. What it amounts to is trying to convince us that it won’t be that painful to pay this tax, because it will be stretched out over years. But when I looked into this scheme I found, that means our kids and their kids will be paying this debt, and it’s very unlikely they will see any benefit.  The bag we will be leaving for our children will be full of debt, crapped out infrastructure, and public salaries and benefits still spiraling out of control.

From the Tax Policy Center –

“State and local governments issue bonds to pay for large, expensive, and long-lived capital projects, such as roads, bridges, airports, schools, hospitals, water treatment facilities, power plants, courthouses, and other public buildings. Although states and localities can and sometimes do pay for capital investments with current revenues, borrowing allows them to spread the costs across multiple generations. Future project users bear some of the cost through higher taxes or tolls, fares, and other charges that help service the debts.”

At a meeting I attended earlier this year, Mark Orme admitted that the city had “kicked the can down the road” on street maintenance for many years, instead paying millions toward their pensions. This included payments toward the actual deficit, instituting a “Pension Stabilization Trust” that siphons money from every fund, even funds “dedicated” to capital maintenance. Through the PST, staff has tricked us into believing we only pay a certain “employer share” of the pensions, in reality, we pay most of their pension cost. This has created what I’m going  to call “the Pension Deficit Bag“.

If we  don’t get a handle on the public employee compensation now, we are handing our kids a disaster. This is the dilemma – the public employees want crazy salaries of as much as 4 and 5 times the median income, AND they want 70 – 90% of those outrageously inflated salaries in retirement,  BUT they don’t want to pay for it.  Years ago CalPERS promised they would make up the difference with investments in the stock market – but their investment strategies, including a bribery scandal, have only deepened the divide.  Now they want the taxpayers to take the bag. In fact, Constantin is trying to convince us that it’s okay to let our kids pay for his ridiculous lifestyle demands.

With groups like Pension Tracker shining a light on this grab, CalPERS and the unions have agreed that “new hires” (our kids) be asked to pay 50%. But top heavy management employees, “classic employees“, are only paying 11%. That is not sustainable. Sounds like a classic Ponzi scheme to me!

“Future project users bear some of the cost through higher taxes or tolls, fares, and other charges that help service the debts.”  But will they receive any benefits? That’s uncertain, in fact, I’d say it’s not going to happen. According to Constantin, we need hundreds of millions to bring existing streets up to safe standards, but the sales tax increase will only bring in a couple million a year. He explains enthusiastically that’s why we will use those proceeds to borrow money (bonds). That sounds nuts to me.

At that Finance Committee meeting earlier this year, Constantin also warned us that the economy is about to tank. If you’ve been paying attention over the last 35 years, as I have, you’ve seen that pattern of boom and bust.  Chico just enjoyed a giant BOOM, despite the poormouth complaining about the Camp Fire refugees. Contrary to the city’s claims, those refugees not only caused a short term blip in the price of housing, meaning MORE PROPERTY TAXES, but those who have remained are still providing a boost to our local sales tax revenues. This will dry up as the retail sector in Paradise recovers, and people start moving back to the Camp Fire burn area. The resulting correction will be tough times for Chico.

Constantin admitted there is such a downturn on the horizon, telling the Finance Committee that his scheme will “shore us up“. What? Who would borrow money in the  face of economic downturn?  The bonds he’s proposing have to be paid no matter what happens in the economy – just like Constantin’s “defined benefits“.

Throwing a sales tax increase onto people who are already experiencing uncertainty is another nail in our coffin. Studies suggest that when people find out there’s a sales tax increase on the agenda, they start hoarding, buying the bigger ticket items ahead of the sales tax increase. This of course creates a bubble. The same studies show that people develop different shopping habits, such as buying online.

Here’s my anecdote – when Tom Lando first suggested a sales tax increase in 2012, I started shopping out of town and online. Of course these purchases are still taxed, but here’s the message – local businesses lost my money, and they won’t get it back. Local businesses need to realize what they stand to lose. It’s not the box stores that are stealing your business, it’s the sales tax rhetoric coming out of the city of Chico.