Did you know that San Francisco’s recently completed 1.7-mile Central Subway cost $1.95 billion? That amounts to over $217,400 per foot. On a per inch basis, this is over $18,000.
Is $18K per inch a good deal?
Currently, less than 3,000 daily riders take the Central Subway. This represents about 0.37 percent of the city’s total population. Perhaps for these riders it’s a good deal. For everyone else it’s a complete rip off.
Still, this should come as no surprise. After more than a decade of artificially low interest rates, courtesy of the Federal Reserve, reckless municipal projects are everywhere. When borrowing is cheap, hideous waste is the standard.
Politicians, no doubt, are enamored with these mega spending projects. They’re bold, daring, and stimulating. Moreover, they offer countless opportunities for the politicians to buy votes.
In Los Angeles, for example, it costs $837,000 to build a single housing unit for one homeless person. Certainly, there’s plenty of grift built into LA’s homeless industrial complex, which merely exercises the malady to keep the money flowing. This is terrible for the city’s working and taxpaying residents. But it’s fantastic for politicians and their friends.
California cities, however, aren’t the only ones setting money on fire. Did you know that Pawtucket, Rhode Island, is spending $124 million to build a minor-league soccer stadium? Of this, $60 million will be funded through state tax credits, federal Covid aid and public debt.
Construction of the stadium is already underway. However, because of higher interest rates, the project’s developer is having problems financing the balance of the cost. This could leave taxpayers on the hook for even more.
But that’s not all…
Levered Pension Funds
These massive tax bills couldn’t be coming at a worse possible time. Because as the Fed’s ultra-low interest rates have enticed local governments to spend money they don’t have on projects they don’t need, they’ve also enticed public pension fund managers to do something equally foolish. That is, stretch for yield.
This is the same fatal error made by Silicon Valley Bank and countless other financial institutions. Now that interest rates have increased, the underlying assets held by pension funds have decreased. The combination of higher tax burdens and massive funding gaps for public pensions are acting as a double whammy for local governments – and the taxpayers supporting them.
The Wall Street Journal recently outlined the grim fundamentals:
“Fixed-income assets such as government bonds used to make up about half of pension-fund portfolios but now are only about 20%. To meet their targeted investment return rates—typically between 7% and 8%—pension funds loaded up on higher-yielding stocks and ‘alternative investments’ such as real estate, hedge funds and private equity, which rely heavily on leverage.
“These alternative investments now make up about 30% of pension-fund investments and are getting slammed by rising interest rates. Defaults on office buildings are increasing while property values fall, which will ding pension funds and make it harder for local budgets to fund retirement obligations.”
The article also detailed some of the gross mismanagement that has taken place in Chicago. Did you know that 80 percent of the city’s property tax dollars go to its public pensions?
Nonetheless, Chicago’s four pension systems only have enough assets to cover about 25 percent of what’s owed to workers and retirees.
Unlivable Hellholes
With such a massive tax burden going to fund public pensions the rest of Chicago’s public services go neglected. For this reason, and many more, Chicago and other big blue cities have become unlivable hellholes.
According to a Municipal Market Analytics analysis of Bloomberg data, more than 100 city, county, state, and other governments borrowed for their pension funds in 2021. This is twice the highest number that did so in any prior year.
Standing behind these pension funds are state and local taxpayers – that’s you, acting as the ATM. What’s more, when the investment returns of public pension funds fall short, governments are primarily responsible for filling the void. This means cutting other spending and services or increasing taxes.
Indeed, covering pension fund obligations is a massive drag on state and local government finances. And while insolvent cities can declare bankruptcy and welch on their obligations, states as a matter of federal law cannot.
Thus, taxpayers will continue to be called upon to pay more and more to cover the pension shortfalls. In Illinois, for example, 25 percent of general tax revenues pay for pensions.
Quite frankly, it’s obscene to force private sector workers having no pension to bailout the pensions of public sector employees. The fact is there’s a legion of public workers out there who’ve been promised a retirement that’s no longer affordable. These grand promises must be broken.
You can witness the effects when traversing through just about every big city in America. By repeatedly reallocating spending from much needed services, the present and future conditions of cities and municipalities are being transformed to unlivable hellholes.
Bondage Is Cruel
Last year we made our great escape from Long Beach, CA – an unlivable hellhole. Our only regret is that we didn’t get out sooner.
For nearly two decades, we lived next door to an intellectual liberal who had retired from the city over 25 years ago. He frequently bended our ear to lament the shoddy conditions of the streets and sidewalks. He also repeatedly bemoaned the lack of resources to address burgeoning homeless encampments and the mobs of mentally ill zombies and drug addicts that flapped their arms and flailed around on the broken asphalt.
Yet it never occurred to him that he and other retired pensioners are receiving money that should be used to maintain basic municipal services. The generous promises made many decades ago – the entitlements – are now destroying the world around them.
Of course, the great promise of a government funded retirement is a sensitive issue. Yesterday [April 6], pension protesters in France stormed BlackRock’s headquarters in Paris. The scene was that of mass chaos.
The trigger for the rage is President Emmanuel Macron’s proposal to raise the retirement age from 62 to 64. The people ain’t having it.
In France, as in America, the false promises of pensions are colliding with the hard realities of arithmetic. Ultimately, all good Ponzi schemes must come to their bitter ends.
In America, the strategy for keeping up the pretense is to devalue the currency and pile the burden upon the taxpayer. This is also a politically savvy means for buying blocks of votes from organized labor.
If you recall, several months ago President Joe Biden announced a $36 billion bailout for the Central States Pension Fund. The funding for this mega bailout comes from something called the American Rescue Plan.
Are you a recipient of the Central States Pension Fund?
If the answer is no, then you’re one of its many financiers. How does it feel to be burdened with such an important responsibility?
Without having a choice, you’re permanently locked into an investment that guarantees no returns.
Bondage is cruel.
[Editor’s note: Is Washington secretly provoking China to attack Taiwan? Are your finances prepared for such madness? Answers to these important questions can be found in a unique Special Report. It’s called, “War in the Strait of Taiwan? How to Exploit the Trend of Escalating Conflict.” You can access a copy for less than a penny.]
Sincerely,
MN Gordon
for Economic Prism
Return from Bondage Is Cruel to Economic Prism
Source: Economic Prisim Rephrased By: InfoArmed