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Was it constitutional for Proposition 124 to replace PSPRS' permanent benefit increases with a capped 2% COLA?

In this blog I and multiple commenters have broached the subject of the suspect constitutionality of PSPRS' replacement of the old perma...

Monday, August 27, 2012

Eat, drink, and be merry for tomorrow our pension may die.

California's bankrupt cities are an easy target for ridicule, and the intention here is not to kick them while they are down.  However, this column about the city of Stockton (The State Worker: Are public pensions at risk in bankruptcy?) includes a small bit information that warrants comment.

Jon Ortiz writes that Stockton, "borrowed $125 million from the bond market 5 years ago to pay for a pension benefits hike."  This is wrong on so many levels that it is difficult to understand how anyone could even propose something so irresponsible, much less actually implement it.

Bonds are supposed to be an investment.  While governments do not invest in the sense that individuals or businesses do because they have no expectation of direct profit, there is an expectation of gain through other means.  Better roads, schools, water treatment facilities, etc. are funded with bonds because in the long run the community profits through the betterment of citizen's health and comfort and a more attractive business environment.

Using bonds to fund a benefit increase is borrowing to pay operating expenses.  If this were a business, this would be a red flag that the business was having serious problems and may not be a going concern.  Of course, a government has a captive customer base and can always bring in more revenue via taxes, but this still leaves open the question of why Stockton would do something so self-destructive to itself and its citizens.

The next posts will attempt to address this question.

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