Detroit is Not Broke!

Long-time CAFR Guru Walter Burien says:

Per Detroit, pay special attention to the following:

If you take a look at why they say they are broke, what they are doing is extending the pension and other liabilities out 30-years as if (it's) a liability to be paid in full today. They funnel off much of their "annual" budgetary funds to meet 100% funding today and (this) is why (they use) the buzzword of "in debt" and "pensions short".   They only project out their income 1-year and project liabilities out 30.

And they do so to create the largest base of investment funds on all levels at their disposal.

Burien's protégé, Clint Richardson, has much more to say about Detroit in a recent blog post, and goes into even more detail when writing of a similar situation, the fabricated Stockton, California, bankruptcy (in a document totaling 250 pages!), where he says:

The budget report is simply an edited and cut down version of the full report called the CAFR. Same books, but the budget excludes most of the investment wealth within governmental and non-governmental (enterprise/customer-based) funds. Consider the budget as the City's checking account for the last year, and the CAFR as the City's combined checking AND SAVINGS ACCOUNT for the last 162 years" Please also note the word "annual" when referring to the yearly budget report. One of the biggest distinctions between the CAFR and the Budget report is that the CAFR is a full accounting of all finances for the entirety of the time that the City corporation has been open. But the budget only focuses on a yearly basis, and what happens within that year. So in the budget report, last year's profits are not necessary to include within this year's budget, for the budget is only accounting for this year. And this means that the council and Manager are not "required" to use the fund balances of today that were gained yesterday, for they are not part of the "budget."   (This is) yet another obfuscation tool to hide the real wealth of the City.

It's a bit like taking out your empty wallet and saying you're broke, while ignoring your bank account, your stocks and bonds, the home you own, etc.   It's also like saying that every bill you will ever owe, including the balance on your mortgage, your car loan, your credit card statements, your kid's college tuition for the next four years"all of it, is now due in full, and, oh, and you are only allowed to count the money you made in through the past year to pay for it all!   This is exactly what the Post Office's 75-year health care prefunding requirement is doing to bankrupt that agency.   In fact, Richardson makes that analogy specifically:

Please note that in my documentary, "The Great Pension Fund Hoax", I covered this pre-funding scheme with the Federal Post Office, which has been borrowing every year to cover the expense of pre-funding its pension obligations and is now in financial trouble and collapse. I maintain today as I did in 2010 when that film was made that this effort is a purposeful attempt to falsely claim bankruptcy for these government entities by the Federal government -- whom at any time can eliminate this pre-funding requirement as they created it in the first place. This is just one tactic being used to drive illusionist distress and cause for "financial estates of emergency" in governments that are not in any way in financial trouble. Make no mistake, pre-funding is government's financial weapon of terrorism."

Burien and Richardson are not making this up.   Here is what frequently cited Moody's Investment Services says in a June 27 press release (you have to drill down half a dozen links in a typical article to get to this, if it's available at all, and, based on their scare-mongering, I wonder if many journalists and editorialists have done so), emphasis added:

The burden of unfunded pension liabilities varies enormously from state to state, according to a new Moody's Investors Service report, "Adjusted Pension Liability Medians for US States." Measures comparing the size of each state's adjusted pension liabilities to its financial resources show a few states facing negligible liabilities and other states with liabilities significantly greater than their annual revenues". Moody's uses measures comparing the size of adjusted net liabilities to state resources in its credit analysis because they are indicative of the strain the liabilities are likely to place on finances. Adjusted net pension liability relative to governmental revenues is the measure Moody's employs in its states' rating methodology scorecard."

So, Moody's, a top ratings agency, is using revenues alone, not total assets, to determine whether there will be a shortfall in future liabilities.

Furthermore, as this Reuters article, coming out the following day (June 28), points out (emphasis added):

The shortfall numbers in these studies, to put it simply, are all over the place. There are many variables that go into these models, but the main factor that causes variation is the expected rate of return on the assets in the plans. The official assumed return on the assets that are held in trust to pay pension liabilities is 8 percent, according to the Public Fund Survey. Fiddling with this projected rate of return can cause swings in the amount of unfunded liabilities. The Moody's study uses an unconventional assumption. According to the Adjustments to state pension liabilities document:

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