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Steve Malanga of the Manhattan Institute breaks down the news that 29 states are facing a $44 billion deficit for next year, and how this will impact ...
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With state bailout.
For breaking analysis here Steve -- has seen senior fellow with the Manhattan institute Steve welcome back to show.
So first let's just talk about 29 states -- These states cannot declare bankruptcy they have to fix the problem.
How is is most likely to happen is that -- gonna come out of my pocket because I do not want to pay for California -- okay now we'll principles and conflict that's not.
-- did we -- live in New Jersey if you in New York if you live in California it's been coming out of your pocket taxes have been going up Governor Cuomo just raise taxes a month ago.
So taxes are continue to go up across the country rank states and basically that some states have more than others -- lot yelling hello my and it's pension crisis California major problem Jersey still has problems.
-- -- I don't wanna share you don't want to -- well that's a -- that's that's a very important issue because one of the fears of course has been that we would have to have a federal -- a states particularly states with big pension problems.
Like Illinois or California.
And as a matter fact senator Orrin hatch now getting involved saying.
We have to do something about it he's worried about the nation's credit rating that it could get hit again if -- -- you have these problems now.
What are the likely solutions well.
You know today the senator essentially said that the state problem could become a federal problem and so he needs some kind of federal legislation to get the states in order no one is quite said that yet.
What he did not propose anything today but there are a whole bunch of things that the federal government could do first of all there's favorable tax status to these state pension funds.
There -- a way of saying look you're not gonna get tax free municipal taxes status as a state.
Friend if you're not if your pension fund it you know I cannot paint your pension funds so the basic idea here is that if your state you borrow money to get to borrow money and -- cheap.
Because you're safe ride and they had to yank that tax status so if you're not behaving if you will in -- in -- solvent matter because many of the states have been just absolutely.
Dysfunctional in terms of their pension systems are just.
Pushing that the problem -- there are so there -- a bunch of things that.
That congress could potentially do what I -- done it yet.
Well there are other ways to change the tax status to essentially you could change and that the federal tax that -- so that defined benefit plans these.
These kind of a unlimited liability plans that we say.
Are not so favorably viewed anymore and instead encouraged states to go to for a one K plans is swimming in that individual state employees would have to contribute more to their retirement well we're getting a free ride from the state hell and and not only that but they would contribute an individual accounts where -- the taxpayer's liability is -- only hero for.
That's the problem.
One of the things that senator hatch said today in this report is he said the traditional defined benefit plan is inappropriate for state and local government.
This is the -- -- that most states that many localities have.
So that I think that was a very strong statement on his part.
It's gonna be interesting now because every time you try to attack unions and union employees particularly public employees you get attacked without a lot of let me interrupt you -- I don't write about that except we are seeing bipartisan pension reform around the country we seen it.
Not only in New Jersey with the Republican governor and the democratic.
Legislature we -- -- in Rhode Island entirely democratic we've seen any new top Republican.
The question is is it gonna be bipartisan.
In Washington.
It is bipartisan in some states where they see there's a problem and there's no way out of it because what's happening now.
Is the money from the did the cost from these pension systems are crowding out other government spending including an essential services.
And everybody started to realize that.
Well that's a real stories see when you really -- yes particularly into municipalities that god loves us you find out that they don't even have cops on the street -- the street lights out you can't see at night it's -- it's like living in a developing developing country.
As -- living in the United States of America -- we've got to do something about it.
I -- don't want the federal government to bail out these states that are spend -- Well and I think that was one of the one of the things that senator hatch that today -- that's not gonna happen but.
We don't wanna go -- into a situation where one or two states fails the Pentagon -- You could create what they call contagion in the marketplace where essentially people won't borrow and lend money to other states even that are good credit risk.
Because you're essentially just get -- falling dominoes so idea is to prevent that.
We'll see what you can do locate -- -- -- I don't like that could go up anymore but I appreciate your coming on thank you so much -- to the CEO.
