State Governments: Immobile, Going Broke and High On Wine

Many state and local governments are heading towards financial insolvency as a result of their state employee pension and retiree medical liabilities. Consider an article from the October 18, 2010 issue of Businessweek magazine:

- According to a study by the University of Rochester and Northwestern University, there could up to as much as $3 TRILLION in unfunded state workers' retirement liabilities. This comes out to about $26,000 worth of debt burden for every family in America.

- One reason for the problem is that state governments have historically been very generous with the way they funded the retirement plans of their state employees. According to the U.S. Labor Department, state and local governments paid $3.04 per hour toward each state employee's retirement in 2007 compared to $.92 that private companies paid for their employees.

- The median state government pension plan had only 76% of its obligations covered as of this summer.

- Six cities, Boston, Chicago, Philadelphia, Cincinnati, Jacksonville, and St. Paul Minnesota, will run out of pension money by 2020 if nothing changes.

- Other state government programs, such as drug treatment centers and after school activities, are being starved for funds and curtailed in an attempt to meet these huge retirement obligations.

Now consider some individual state situations:

- According to a recent online article by the Washington Examiner, the state government of Maryland has $33 billion in unfunded pension liabilities.

- According to the Stateline organzation website, West Virgina has a $7.4 billion shortfall in its state government retiree health care system.

- According to the Houston Chronicle, the Texas state government has a $38.5 billion shortfall in its retiree fund.

- According to an online National Review article, the state of Ohio would have to dedicate 100% of its the next 8.75 years of its revenue stream to fulfill the current state government employee retirement liabilities, excluding any future liabilities. Obviously, if this was theoretically to happen, all other state funding would bet set to zero for almost nine years, i.e. no teachers, no state police, no roadwork, etc.

- Virgina recently closed a $4 billion shortfall in its operating budget partly do to the fact that it did not pay the required $620 million into its state employee retirement fund, raising the possibility of a larger shortfall for the funding down the road.

Why single out those five states? It ties into another recent article that was in the October 25, 2010 issue of Businessweek entitled: "Pouring Government Money Into Merlot and Chardonnay." Apparently, despite possibly being $3 TRILLION in the hole just for state government employee pension benefits, all fifty state governments have some kind of program of giving state taxpayer money to in state wineries. The article points out the following examples:

- The state of Maryland, despite a $33 billion shortfall, has paid out over $80,000 to six in-state wineries to both plant more vines and expand production capacity. Knob Hall Winery received $8,000 from the state to plant 4,000 vines. The winery has lost money every year since it opened in 2006 and will be unprofitable again this year. Thus, the state of Maryland is not even funding a profitable private endeavor.

- The state of Texas, despite a $38.5 billion shortfall, allocates $2.3 million a year of taxpayer money for wine research, marketing, and grants, nine times what it allocated in 2005. Thus, as the economy got worse, more taxpayer money went into the in-state wine business.

- The state of Ohio, despite swimming in red ink caused by its out of control retiree liabilities, spent more than $1.1 million in subsidizing its state wineries last year, up 38% from the previous year.

- The state of Virginia, despite a multi-billion dollar budget shortfall, dedicates $1.3 million of its budget to support its state wineries.

- Although the West Virginia state government winery support dollars are not in the article, consider the financial status of the Forks of Cheat Winery in West Virginia. The winery is 22 years old and has yet to turn a profit. Wonder how many West Virginia taxpayer dollars are going to support this long time unprofitable operation?

- According to a spokesperson from the American Sommelier Association, it usually takes over two decades, if then, for a new winery to become profitable.

As a result of their outsized retiree pension liabilities, the states are rapidly facing bankruptcy, find themselves cutting other vital human services in order to pay for these retiree programs, but somehow think it is a good idea to subsidize unprofitable private businesses. How many drug treatment centers could be kept open in Texas if it diverted that $2.3 million winery subsidy? How many more teachers could Ohio keep on the payroll if they diverted the $1.3 million they spend?

And it is not just the states. According to the article, the Federal government, that government level with over $13 TRILLION worth of debt, will spend $500,000 of Federal taxpayer money just to help Virgina wineries, it will spend $40,000 to encourage alternative vine growing strategies in Idaho, and will spend $9,000 to improve highway access to wineries in Colorado.

Obviously, stopping all winery subsidies will not cure the states' pension program problems and will not balance the Federal budget. However, these subsides are no more than examples of corporate welfare and should not be a responsibility or priority of any government entity, there are just too many problems, both financial and human, that need to be addressed with limited funds. How many other industries in each state and throughout the country receive taxpayer dollars? Add up all of those subsidies and you are probably talking about some serious dollars.

If a winery cannot be profitable on its own, it is not the state's duty to keep it alive. In doing so, other vital financial needs go unmet. This is the concept that New York Times columnist David Brooks talked about several weeks ago, our "immobile government." Government in America today has become so burdened down with bad priorities, poorly structured, poorly negotiated, and poorly financed retirement plans for state workers and corporate subsidies for failing businesses such as wineries, just to name one, that vital services, services that could positively and materially affect regular individual citizens, go wanting. Drug treatment centers, school funding, infrastructure improvements, etc. cannot be done because the political class has done such a poor job of immobilizing government at every level with bad and burdensome priorities.

The question of whether state governments and the Federal government will be able to fix their financial status and shake off the bondage of immobile government is the greatest challenge facing the country today. We can only hope that the politicians can find the courage, respect, and knowledge to fix these dire problems. We owe it future generations of Americans to present them with a workable, financially strong and mobile government structure and we can pay no higher respect to the sacrifices our veterans have made than to fix the country they so bravely defended so many times and restore the freedom that immobile government steals away.