One thing the Democrat Left has always been good at is spending other people’s money.
Whether it’s Democrat lawmakers spending trillions of dollars our country doesn’t have or their allies in the Left-wing labor union sector forcing companies to expend money in worker benefits beyond what is reasonable, there never seems to be enough money for them to spend.
One of the ways the Democrat Left is bankrupting state governments and companies alike is through mandated pensions.
Illinois has been teetering on the edge of bankruptcy for years now, propped up time and again only with new tax increases, with over billions in pensions owed to former employees the state simply doesn’t have.
The Land of Lincoln isn’t the only state heavily in the pension red. As Investors Business Daily reported in July 2017:
After years of overpromising and underperforming, state pensions face a yawning $1 trillion-plus funding gap. … Pressured by public sector unions, state lawmakers boosted retirement benefits, using wildly unrealistic forecasts for investment returns and wage growth to justify them. As a result, overall net pension liabilities rocketed up from $0 in 2001 to $1.1 trillion in 2015…
Now, it appears, one of America’s biggest corporations is facing similar pension shortfalls. As Bloomberg News reports, GE is seeking to cut $8 billion in debt and deficit by freezing pensions for 20,000 employees.
The problem GE has is the same that many states have: Over the years executives over-promised benefits to union workers using fantasy investment return forecasts and growth in wages. In an effort to salvage the manufacturing giant, CEO Larry Culp will freeze pension benefits (but not payments — yet) and also set aside as much as $5 billion to cover funding requirements through 2022.
But it’s just a stopgap measure, as Bloomberg noted. The company’s “stubborn pension deficit” is one of its biggest financial liabilities which is making it extremely difficult for Culp to put the company back on solid financial ground.
Outsized pension payments aren’t the CEO’s only problem. Overall debt retained by GE remains a big issue as well, along with ongoing insurance liabilities and a power business that is falling short.
“These pension actions should have been orchestrated much sooner and arguably by the previous CEOs,” said Deane Dray, an RBC Capital Markets analyst, in a note quoted by Bloomberg. And while Dray said the pension freezes are a positive in getting the company’s financials to balance, it can’t be comforting to pensioners because what happens if GE goes belly-up?
How will they survive?
Some have suggested that federal bailouts (using taxpayer dollars) of large companies (the way Bush and Obama bailed out GM back in 2007-08 as well as the country’s big banks) and states are coming.
But a U.S. Senate resolution in July — which is non-binding because it’s not legislation — expressed the chamber’s sentiment that the federal government should not take taxpayers’ money and use it to bail out a trillion dollars’ worth of bad decisions on the state level. (Related: Several states set to collapse under crushing weight of bankrupt pensions: Will Illinois become the first?)
And yet, that might be the only thing the federal government can do.
“Considering that states cannot declare bankruptcy,” writes Rachel Greszler, a research fellow in economics, budget, and entitlements at the Heritage Foundation, “many states’ failure to confront absolutely unsustainable pension and other obligations shows that they are counting on a federal bailout.”
Indeed, lawmakers in states with the most pressing pension debt — Illinois again comes to mind — fear voter backlash and so they haven’t been willing to do the right thing and lower the states’ pension obligations to begin at a date sometime in the near future.
That’s another reason why Congress will never address the $22 trillion U.S. national debt; remaining in office with all its perks is more important to them than doing what’s best for our country (and cutting spending).