Former Birmingham Mayor Larry Langford reports to federal prison in Kentucky
Posted on 01/04/2011 6:16:33 PM PST by Libloather
America’s Pensionless Future
The first debt bomb has already detonated. Is it the first explosion in a nationwide chain reaction?
Robert Morley
From theTrumpet.com
January 4, 2011
Want to see the future? Go to Prichard Alabama. It is a city with a sobering lesson for America and for millions of people who think the good times are about to return.
What draws our attention here?
Nothing. That’s what’s startling. There is hardly anything going on here anymore. Prichard in 2011 is a rundown, decaying, derelict collection of overgrown, boarded-up old buildings. Around them, abandoned homes litter a landscape crisscrossed with cratered roads and trash-strewn streets. The only thing making any noise is the graffiti.
Why the silence? It’s because 40 percent of the population of Prichard isn’t there. And the few remaining businesses operate from behind barred windows and guard dogs.
Prichard used to be the real-time American dream. It was a rich manufacturing boomtown replete with movie theaters, big-box department stores and its own zoo. The schools were safe. Children played in the streets. During that heyday, it was hard to even find a place to park in this model city.
But the town’s dramatic boom-to-bust isn’t why this Alabama case study is on the front page of the New York Times. The reason Prichard (population 27,000 and falling) is making headlines is that its leaders are setting a startling precedent that might be coming to a city near you.
According to the New York Times, Prichard pulled the trigger on something that pension experts say they’ve never seen before: It stopped sending out pension checks to its retired workers.
One month the checks were in the mailbox. The next month—cold turkey—the box stayed empty.
What do you do when the money is gone? That is a question Prichard’s pensioners are now dealing with. Predictably, the lawsuits have begun. But meanwhile, so have personal bankruptcies by people no longer able to meet credit card and other debt obligations. One 66–year-old retired fire captain said he is going back to work as a security guard so he can make his mortgage payments. Charities are helping some, but not everyone. The retired fire marshal, too young to collect social security and unable to find work, was found dead in his home with all the utilities turned off.
It is illegal for Prichard to stop paying its pension obligations. The state has repeatedly ordered the city to pay up. It would if it could. The problem is that it is flat, busted broke—the charred remains of a combusted economy. Property values are sinking, taxes are soaring, and jobs and people are fleeing. But the debt payments remain. How can you set up a nice pension-payment plan when all you’ve got around you is financial rubble—the result of years of mismanagement?
Every judge in the country can order you to pay until they are blue in the face, but it’s like demanding the mayor of a war zone give everyone a bonus this year.
At first, it might not seem so startling that a city could go broke. After all, people go broke, so why can’t cities? That’s a good question—and the trouble is, it’s one that investors around the world are beginning to ask themselves.
Up until this point in American history, state and municipal debt has been among the safest investments available. Only U.S. treasuries were considered safer. But is Prichard the proverbial canary in the toxic coal mine? Is there a devastating chain reaction starting around us?
“Prichard is the future,” says San Diego’s former city attorney Michael Aguirre, who is advising the city to declare bankruptcy to reduce its pension burden. “We’re all on the same conveyor belt. Prichard is just a little further down the road.”
Read that again! This is San Diego, California—not Podunk, Nebraska.
Startlingly, San Diego is just one of thousands of cities stretching from California to New York whose bloated, crushing public pension obligations are pushing them toward bankruptcy—or toward contact with a high social explosive known as “pension repudiation.”
“The most alarming thing about the state issue is the level of complacency,” says Meredith Whitney, a respected financial analyst. “It has tentacles as wide as anything I’ve seen. I think next to housing this is the single most important issue in the United States and certainly the largest threat to the U.S. economy.”
Take Illinois. The state has a total debt of $160 billion. Of that, $130 billion sits on the books of posh public pension plans. That equates to a debt of $25,000 per household—just to pay looming pensions. The plan is so underfunded that the governor is borrowing billions of dollars to “invest” in the stock market in a desperate attempt to make more money and delay the coming pension implosion. According to Northwestern University’s Joshua Rauh, Illinois will be Prichard in seven years if nothing is done. The budget will implode, and every state pensioner will lose his or her income.
The City of Pittsburgh faces a pension Armageddon too, as does Central Falls, Rhode Island. Michigan has several cities that would probably declare bankruptcy if state law allowed. Detroit is planning on halting police patrols and garbage collection to 20 percent of the city to free up funds to pay its debt and entitlement obligations.
Philadelphia’s public pension plans will be completely drained in four years. Like Prichard, Philadelphia technically isn’t “allowed” to go bankrupt either. But that won’t make retirees feel any better when the monthly checks get smaller and smaller or disappear completely. You just can’t get water from a dry rock.
The looming pension crisis may be one of the top stories you’ll see in 2011 and beyond. And this is a big deal to more than just former city employees. Investors want to know who will get paid—the debt holders or the pensioners. The soon-coming war will have drastic implications, none of them pretty.
Debt markets notoriously suffer from herd mentality. If a city—or worse, a state—were to default on its debts, not only would its borrowing costs skyrocket, but a chain reaction affecting all states and cities could also be set off. A European-style debt firestorm could easily ignite in American cities. Yet, if cities and states continue to pilfer the pension plans to pay debts and current levels of spending, they risk becoming Prichard.
The City of Prichard’s situation is startling for one other reason. Prichard was a financial bomb that everyone knew was going to explode. Multiple times the city was in and out of bankruptcy protection. City officials were even court ordered to put more money into the pension fund (money they didn’t have). For years, officials were warned that the pension was drastically underfunded. One study commissioned for the city in 2004 even predicted the exact year that the pension time bomb would click down to zero. It did, right on schedule.
Yet, through it all—and despite abundant warnings—no one was able to defuse it.
At this time of year the media is full of experts predicting what the future will hold. Will it be a year of recovery? Will the jobs come back? Will house prices stop falling? Will banks stop foreclosing? Will the stock market go up? In short, will the good times return?
Want to know the future? It is easy: Go to Prichard.
It's a poor, Black, incompetent, crime-ridden area and always has been. Nothing to do with the business climate or economic decline today. (or, very little)
I wondered if there might be more to the story. Not surprised to hear that.
Nonetheless, there is likely plenty of that to go around. Heck, look at Birmingham, to take it to a much larger level. Aren’t they in really bad financial shape?
Many municipalities allow police and firemen to retire at 50 and civil servants to retire at 52-60. If he retired at 50 and is under 62, he’s got no pension, no job and years before Social Security can come in. No income from pension and cannot get income from other sources, and his utilities has been cut off, he killed himself because it seemed hopeless.
Nice. I’m outside of Atlanta; former mayor Bill Campbell is already out of his stint in the Feddle pokey.
“the sad thing is we need to kiss that money goodbye. it’s gone, not ours. They are so over their heads in debt they can’t pay us back no matter what.”
Whoever was involved in the theft that is still alive needs punished severely, Long Jail terms.
* Jesse M. Norwood — of Prichard, Mobile County, Ala. Mayor of Prichard, Ala., 1996-2000. Convicted of willful neglect of duty as mayor and removed from office on March 17, 2000. Still living as of 2000.
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