Last week, I told you that Illinois wasn’t paying the $9.1 billion annual interest payment on its pension debt. But, after looking at the swelling U.S. state and local pension debt figures, that might prove to be small potatoes.
All told, U.S. states and local governments have about $2 trillion less than what they need to cover retirement benefits.
That’s not a typo: $2 trillion in the hole!
And the sad truth is that gap simply can’t be filled.
Result: Dramatic cuts in public services and potential upheaval of every sort as confidence in government falls and the sovereign debt crisis begins to take hold.
People are starting to see the writing on the wall. In fact, I’m now seeing an outpouring of people trying to retire early and take their lump-sum payment before the money is gone.
But this can create other problems, putting even more strain on already beleaguered pensions.
Take the Dallas Police and Fire Pension System, which Larry’s written about a number of times: The pension fund has been forced to temporarily block lump-sum withdrawals for fear of breaching a debt covenant, which would trigger a call on a $174-million loan this spring.
This is the result of investment losses, inadequate contributions, and perks granted in boom times.
Pension plans, like the one in Dallas, simply made promises that are proving far too difficult to keep.
Benefits are also starting to get cut. The California Public Employees’ Retirement System (CALPERS) is starting to cut benefits to particular cities by more than 50%, for municipalities that fail to pay their premiums to CALPERS.
Case-in-point: East San Gabriel Valley Human Services Consortium left a $406,027 unpaid bill to the state system, and now CALPERS may slash the checks of 190 workers by 63 percent — the rate by which the agency has fallen short. As CALPERS deals with a growing gap between what’s been promised and what’s been set aside, I expect to see more and more benefits being slashed.
The bottom line: Larry’s cycles have been forecasting the looming sovereign debt crisis for years. As benefits are stripped away, confidence in government will fall, tensions will rise, leading us down a path where your money and liberty could be at stake.