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Detroit is Not Broke!

By   Follow Me on Twitter     Message Scott Baker       (Page 6 of 10 pages) Become a premium member to see this article and all articles as one long page.     Permalink

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[/blockquote] 

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.  

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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

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$ 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]

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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:

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Scott Baker is a Managing Editor & The Economics Editor at Opednews, and a blogger for Huffington Post, Daily Kos, and Global Economic Intersection.

His anthology of updated Opednews articles "America is Not Broke" was published by Tayen Lane Publishing (March, 2015) and may be found here:
http://www.americaisnotbroke.net/

Scott is a former President of Common Ground-NYC (http://commongroundnyc.org/), a Geoist/Georgist activist group. He has written dozens of articles for (more...)
 

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Detroit is Not Broke!