Long-term debt is not short-term debt
Wednesday, Nov 26, 2014 - Posted by Rich Miller
* Math is, indeed, simple…
The $110 billion in unfunded liability is long-term debt. It can be paid off over time because everybody isn’t gonna retire all at once.
* So, to put it in simpler terms, if you think of that liability as a 30-year home mortgage, you can see that it’s not an existential crisis with current revenues in place. Most people who have mortgages couldn’t pay them off in three years if they diverted all their income to just their homes. It’s why they take out loans in the first place.
And nobody has a mortgage which reinvests what’s being paid every month to help pay off the balance. That gives the state an advantage.
We’re just about at the top of the Edgar ramp. Payments will rise another $800 million or so next fiscal year and then essentially even out as a percentage of revenues. It can be managed, but the budget will be very tight for a very, very long time.
* The bigger problem is with our revenues, which start to collapse at the end of this year. If you buy the nicest house you can afford while earning $100,000 a year and your income suddenly drops by $25K, then that mortgage becomes far less affordable.
So, that’s really what this debate is about. People are trying to find a way to cut pension payments so they can cut the income tax rate. If they can’t do that, then other programs will have to be slashed or other taxes raised so the income tax rate can be lowered. There are no easy solutions.
A homeowner in the same situation could go out and find another part-time job, cut way back on expenses, or even sell the house. That last option probably isn’t available to the state.