A recent report issued by Moody’s rating service reveals that local governments are $2 trillion in the red. Why? Pension obligations.
The money has not been put aside. The money that was put aside has not been invested well.
The result is obvious: a Great Default is coming. But no one wants to think about it. Cities give in to demands by employees. The politicians in office today know they won’t be in office when the default comes. So, they cave in.
The union members think they will get paid. The politicians do not tell them otherwise. “Let sleeping dogs lie.”
Here are the facts.
Moody’s says the actual liabilities are over three times what local governments report. Lots of sleeping dogs are out there. The best strategy is to lie to them.
Moody’s isn’t lying. Politicians are.
Moody’s is about to change the accounting rules it uses to assess cities’ liabilities. The cities have their lie-abilities. Moody’s will no longer accept these lies when rating cities’ liabilities.
Cities and counties are likely to experience downgrade. So, borrowing costs will rise.
Here is the killer for cities.
Asset-smoothing, which enables pension plans to spread losses or gains over a number of years, will be abolished. Instead, pension fund assets will be valued based on the market value or the fair value on the actuarial reporting date, Moody’s said.
No more lying with statistics. Well, less anyway.
For more bad news, read the article.