Thursday, March 12, 2009

Mr. Financial (Ir)Responsible Strikes Again

Scott Walker, Mr. Fiscal Conservative and Mr. Financially Responsible, is at it again.

Walker doesn't want to do anything foolish, like utilize stimulus dollars to create jobs, but would rather have Milwaukee County taxpayers just pay for the stimulus without using it.

He claims that it is because he doesn't want to stick Milwaukee taxpayers with any long term debt or ongoing costs, or so one of my anonymous Walker-backing commenters would have us believe.

I cannot wait to see how Walker, or said commenter, is going to explain Walker's risky Pension Obligation Bond scheme.

Gretchen Schuldt, intrepid blogger and good friend of Cog Dis, broke the story last week, including an interview with County Board Supervisor John Weishan.

Supervisor Weishan expands on his view in a press release he did today, which also appeared at From the press release:

County Executive Scott Walker’s persistent efforts to bankrupt Milwaukee County continue. His proposed Pension Obligation Bonding (POB) plan is a risk that Milwaukee County taxpayers cannot afford to take. This is the third year in a row that the County Executive has proposed to borrow money to finance upcoming pension obligations. It’s amazing that he has had the guts to propose this three times after residents voted it down in a 2005 referendum, when it failed by a 58-42% margin. And that vote was for a possible $260 million borrowing plan. Now, the County Executive is up to $400 million. We should instead respect the wishes of Milwaukee County voters who said no.

Ordinarily, pension obligation bonds are simple financial tools used to help meet long-term pension needs. The problem with Scott Walker’s approach is that his POBs are not tied to any long-term strategy to put Milwaukee County’s pension fund on sound footing. Instead, he’s only trying to create one-time budget savings.

The County Executive’s premise is simple. Borrow money at 6.5% and invest it at an 8% rate of return. If only it were that simple or safe. In today’s market, you have to have an exceptionally high threshold for risk, along with intense knowledge of very complex investing strategies, to achieve even meager returns. Few, if any, have this temperament when tax dollars are involved. The recent meltdown on Wall Street proves that the stock market is simply too volatile and too risky for taxpayer dollars.

Pension obligation bonding plans like Scott Walker’s have been extremely difficult to predict. The few pension obligation bonds that have been issued in other jurisdictions do not provide a track record that is reliable. Some of those mixed results were disastrous when coupled with short-term budget savings.

One of the astute commenters at Gretchen's site also pointed out that the Chicago Transit Authority is having similar problems with their pension system, and have concocted a risky scheme similar to Walker's. Bloomberg covered the story, and found the results to be much less than desirable (emphasis mine):

“We’ve identified the problem and a solution,” said CTA Chairman Carole Brown on April 16, 2007. The agency decided to raise money from a bond sale.

A year later, it asked Illinois Auditor General William Holland to research its plan. The state hired an actuary, did a study and, on July 17, concluded that the sale of bonds would most likely result in a loss of taxpayers’ money.

Thirteen days after that, the CTA ignored the warning and issued $1.9 billion in bonds. Before the year ended, the pension fund was paying out more to bondholders than it was earning on its new influx of money. Instead of closing its funding gap, the CTA was falling further behind.

Public pension funds across the U.S. are hiding the size of a crisis that’s been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy.

The paper alchemy gives governors and legislators the easy choice to contribute too little or nothing to the funds, year after year.

The article goes on to show us that if the County Board approves of Walker's risky plan, there is a great likelihood that the State and even the feds would have to do their own bailout of Milwaukee County.

Right wingers are constantly harping about Doyle and his audacity to try to cover the bills. I wonder how loudly they would shriek if Walker would get his way on more than he already does, and they would have the seriously big bills to pay off.


  1. The alternative is simple.

    Pay the pension obligations under the current system, increasing County taxes to do so.

    No problem. Of course, I don't live in Milwaukee County. Nor do I have the Grand Theft-Pensions clause working for me.

  2. Well, like the CTA, or some local school districts, Walker's option will force you to pay when we need a bailout.

    When can we expect your check?