Municipal Death Spiral

The next bubble, financial crisis, or whatever you'd like to term it is ... the Death Spiral.

"Former mayor Richard Riordan has been roiling the civic waters by arguing that the surest -- and perhaps the only -- way out of Los Angeles' fiscal crisis is a declaration of municipal bankruptcy, which he believes ought to come sooner rather than later."
"In a conversation with The Times over the weekend, Riordan argued that bankruptcy may be the only way to attack the structural problem gnawing the heart out of the city budget: unsustainable public employee pension costs. Currently, Riordan says, the city is struggling to meet its pension obligations, and that's assuming it will receive 8% annually on the money invested on retirees' behalf. In fact, the average return over the past decade has been just 4%. Over the next few years, L.A. may be looking at $1.5 billion in pension obligations it can't meet. "We need some adults to come alive in the city and to talk through how to meet that liability," he said. "If that doesn't happen, we shouldn't rule out bankruptcy."

This bit is absolutely fascinating. "Moreover, while federal law lets bankruptcy judges reduce negotiated pension and health benefits in the private sector, it forbids changes in public employees' agreements.
So the Feds have decreed that no matter how badly you are treating the citizenry, or badly their economic lives are affected, you cannot undo the absurd over-promises of long dead politicians to make right the local budget.  Could there be a better illustration of the absurdity of promising to pay municipal, state and local employees a set future amount?  How about a constitutional amendment that politicians can't promise the money of anyone not yet born to anyone else for anything.  How about it further specify that, the incompetence of politicians to manage these things being a given, all government employees have to work for the wages they earn today, and save for their own futures just like the citizens they "serve?"

"This year, the city will need to come up with $423 million to cover those costs. Over the next five years, the annual bill escalates thus: $526 million (2011-12); $643 million (2012-13); $788 million (2013-14); $902 million (2014-15). In 2015-16, Los Angeles will have to come up with more than $1 billion just to pay its retired police officers and firefighters their pensions and to cover their healthcare. As Hansell put it, "Those are astonishing numbers." They're also unsustainable.
"Who wants to live in a city without decent police or fire protection or libraries or parks? Unless we get these pension costs under control, we won't be able to afford any of those things."
"Nobody likes any of these choices, but the question now is whether we want to make the future of this city and its people hostage to the bad decisions of the past.""

http://www.latimes.com/news/opinion/commentary/la-oe-rutten14-2010apr14,0,3958891,print.column