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General News

Detroit is Not Broke!

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But wait a minute, this includes amortized liabilities years out, but what about amortized revenues?!    

Let's break free of the jargon for a moment, since it is misleading, perhaps deliberately so.  

It turns out, from the CAFR, that the pension and annuity benefits for FY 2012 was only half a billion dollars ($509M -- page 180).   At a consistent rate of payout, and assuming no ROI increase in the pension fund, it would take 10 years to fully exhaust the fund, but during that time, there's will also be additional money put in, in the form of employee contributions and employer contributions (e.g. $454M in FY 2012, which leaves just $55M in deficit, or about 9.3%) funded by taxes (remember those?) during that 10 years.    Since there are already enough assets in the pension fund to cover the so-called "shortfall" this year and a few years ahead, the additions alone could offset the entire projected deficit, even with modest returns.  

This section also includes deductions of:

$317,388,978 for " Premiums to Insurers and Damage Claims" and

$200,048,571 for "Member Refunds and Withdrawals" and

$ 11,725,495 for General and Administrative Expenses

- though perhaps the Premiums entry should not be paid by the workers' pension fund(?) - and these additional costs combined with the pension payouts slightly do slightly exceed a billion/year, but even at that rate, it would be 5 years before the fund is exhausted.   And remember the Reuter's article criticizing the way expected returns are calculated (see above).   ROI is very difficult to predict.   More on alternative investments that might be easier to predict, and even counter-cyclical, later.

But perhaps a more important question to be asking is: since when are governments supposed to pay expenditures from the returns on investments (ROI), instead of directly from taxes?   And since when are they supposed to make a profit?   Most people assume government expenses should be pay as you go, with just enough left over to get them through the year from that year's tax receipts.

Burien, in the email referenced above, says:

[blockquote]

Government was NOT supposed to operate at a profit. How did they get around this restriction?
 
ANSWER: If for example a city had a 100-million dollar profit for the year from any of its operations, at a stroke of a pen they create or deposit into a "liability fund" and poof, there goes the profit re-designated now as a liability.

[/blockquote] 

Now, returning to the pension fund:

First, the pension fund returns are mediocre (see above), plus they are plagued with corruption, and THAT, more than the amount of payouts, is the real story here.   But no one will take on Wall Street money (mis)managers.   No one wants to withdraw money from Wall Street brokerage houses and invest it elsewhere, least of all Comptrollers and Treasurers who want jobs there later.

Second, a Public Bank might be a much better, and counter-cyclical, investment, which would invest in the city/state.   The Bank of North Dakota's Return on Equity (ROE) has averaged 20+% for over ten years, and it has returned $300 million in dividends, while other states and cities -- like Detroit -- are paying interest on credit they could generate themselves if they deposited their money into a public bank.   A public bank can be set up in a municipality; it does not have to be done at the state level.   Even if the ROI was comparable, there would still be the added benefits of:

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Take action -- click here to contact your local newspaper or congress people:
Audit the Detroit CAFRs

Click here to see the most recent messages sent to congressional reps and local newspapers

http://newthinking.blogspot.com/

Scott Baker is a Senior Editor/Economics Editor and Writer at Opednews, and a blogger for Huffington Post.
Scott Baker is President of Common Ground-NYC (http://commongroundnyc.org/), a Geoist/Georgist group. He has written dozens of (more...)
 
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Now, the big question is whether truth, justice an... by Mark Adams JD/MBA on Monday, Aug 5, 2013 at 5:29:14 PM
The Deflation game the bank owners play is well do... by P Brandt on Tuesday, Aug 6, 2013 at 10:22:23 AM
Good to their are some cops with hearts, & cou... by christopher H. on Saturday, Aug 10, 2013 at 2:20:01 PM
After I alerted Walter Burien about my article, he... by Scott Baker on Wednesday, Aug 7, 2013 at 11:13:53 AM
Thank YOU Walter for insights!!... by christopher H. on Saturday, Aug 10, 2013 at 2:22:09 PM
Wherever there is a large sum of money, politicos ... by Joy Zocco on Thursday, Aug 15, 2013 at 3:48:22 PM
More and more people are beginning to realize the ... by Scott Baker on Thursday, Aug 15, 2013 at 5:30:57 PM