Hoppy’s Commentary for Tuesday

In the 1987 classic movie Wall Street, Lou Mannheim tells the brash young broker Bud Fox, who is about to be arrested for securities violations, “Man looks into the abyss, there is nothing staring back at him. At that moment, man finds his character.  And that’s what keeps him out of the abyss.”

Our country is dangerously close to the financial abyss.  The latest report from the Congressional Budget Office says that “By the end of this year, CBO projects that the federal debt will reach roughly 70 percent of gross domestic product (GDP), the highest percentage since shortly after World War II.”

One CBO scenario has the country toppling off a “fiscal cliff” at year’s end when the tax cuts expire, automatic cuts are implemented, millions of Americans are hit with the Alternative Minimum Tax and Medicare payments to doctors are reduced by 27 percent.

Meanwhile across the country, state and local governments are struggling to remain afloat.  Earlier this year, Republican Senator Orrin Hatch, a ranking member of the Senate Finance Committee, said the public pension debt for state and local governments stood at $4.4 trillion, with another $3 trillion on other debts.

In West Virginia, the Daily Mail’s Ry Rivard reported that the state’s “53 municipal pension plans for police officers and firefighters now total nearly $1 billion.”  Additionally the pension debts rose by an alarming 28 percent from 2009 to 2010. 

Michael Gerson, writing in the Washington Post, said the widening gap between how much it costs to pay for public employees and their benefits and how much money is available is causing voters to decide the proper role of government:  “Does it exist primarily to serve the public and the needy, or to serve those who serve in government?”

There are encouraging signs that voters get it. 

Wisconsin Governor Scott Walker survived a recall vote led by labor unions.  Labor was apoplectic that Walker eliminated a budget deficit by forcing public employee union members to pay more for their health care and contribute more to their retirement, while stripping away collective bargaining rights that threatened to bankrupt the state.  

San Diego had seen the city’s payments into the public retirement fund rise from $43 million in 1999 to $231 million this year; it’s now 20 percent of the city’s budget.  There, voters approved a freeze on the pay levels used to determine retirement benefits.

In San Jose, California, voters approved a measure requiring city employees to put up to 16 percent of their pay into their pension program or accept lower benefits and retire later.

Private sector employees, who have seen their retirement plans decimated by the recession and watched their health premiums rise, are losing patience with the protected entitlement mentality fostered by the public employee unions. 

A Washington Post editorial said, “Public concern about the cost of state and local government is real, justified and spreading.  Voters are not content with policy menus that include only service cuts and tax increases, without significant, permanent reductions in personnel costs that make up the lion’s share of budgets.”

As the government spending crisis has become more serious, we’ve looked to Washington for solutions.  The federal government has so far failed us, responding with gridlock and bromides.   

The elections last week indicate, however, that voters who witness the fiscal morass in their own states and communities are more willing to make the tough decisions.  Our solutions may come at the local level, where people are closest to their government, and migrate to Washington rather than vice-versa.

These states and communities may indeed be discovering their true character, and that might just be enough to keep us out of the abyss.












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