WEDNESDAY, NOV. 28: Network television has been droning on about the fiscal cliff in the United States, no doubt to the boredom of its viewers.
A fiscal cliff is simply government running out of other people’s money, a problem that has never been resolved, short of something like the French revolution.
Late last year I took a trip to Pritchard Alabama, a small town just outside the big city of Mobile, that I had never heard of until I read an article about it going belly-up in The New York Times.
The reason I went there was to see first-hand what happens when a city of around 40,000 souls goes bankrupt. The picture was not pretty; boarded up stores, beaten-up old cars, disillusioned people sitting around staring, and a general air of hopelessness. It reminded me a lot of St George’s on a Saturday afternoon.
What happened to Pritchard, is happening to many other municipalities in the US. Stockton, San Bernardino, Mammoth Lakes and Vallejo — all in California — are just a few examples.
People believe that governments cannot go bankrupt. Well just look at big countries like Argentina and Greece, or small municipalities like Pritchard.
The bond holders, owners of government debt, hate bankruptcy because it requires them to take a hit on what they thought were ultra-safe investments. After all, nothing is safer than lending to governments — or so they mistakenly thought.
What brought these financially underwater cities to their knees were crushing medical and retirement obligations to public workers and to seniors. This brings me to financial issues facing Bermuda.
Much has been said during election promises that seniors in Bermuda need not worry about such things. Indeed, the Minister of Health, Zane De Silva, stated that seniors have no need to be concerned about health costs because government will stand behind its many promises. Good luck — I feel reassured.
The real problem is — as The Royal Gazette pointed out in an editorial on November 21 headlined ‘Petrifying Pensioners’ — that such promises have not been costed, and medical costs are rising at an unsustainable level. But who needs to worry about costs when the full faith and credit of Bermuda stands behind such promises?
Well I think anyone who is dependent on government medical care and pensions should be worried, in pretty much the same way as these unfortunates who live in California and Alabama. The funds necessary to meet government obligations to seniors have gone missing in action. Let me explain further.
The current government has made impossible promises to voters — free health care and generous pensions when life expectancy is increasing, the working population is decreasing, and wages are sinking. Naive electorates have voted in MPs who made such impossible promises.
There are two major government obligations for which adequate money has not been set aside. These are medical insurance (mainly Future Care), and government pension plans of which there are two major schemes. The first is the Social Security Fund, and the second is the Public Service Superannuation Fund. To meet their obligations, without calling on future tax revenue both of these funds should be funded at around the 100 per cent level. Both are massively underfunded – around 35 per cent for each.
The total for such unfunded retirement liabilities is somewhere around $1.5 billion which is in addition to the government debt of around $1.5 billion. In other words, Bermuda is in debt to the tune of $3 billion or around $60,000 per Bermudian, including children. Or, almost $250,000 for a family of four.
And this does not include the liability for health care which is massive — and for which Government has failed to provide any financial estimates.
The question that arises is this; who is going to pay for all of this if Bermuda is going to honour its obligations? Government constantly sweeps this question under the carpet, giving the impression that the costs will paid for by a combination of Santa Claus, the Easter Bunny and the Tooth Fairy. It kicks the can down the road.
Who pays is clearly future taxpayers — mainly people between 30 and 55 who are working. But jobs are hard to come by right now; anyone over 55 is not likely to be hired, and salaries and benefits are falling. According to one estimate people are worse off now by $10,000 per annum than they were 3 years ago.
This raises yet another question: is Bermuda going to follow the lead of cities in California and Alabama and go bankrupt, stiffing those who were foolish enough to lend to Bermuda in the first place?
And what about seniors dependent on social security, and retired public servants who are entitled to a decent pension?
I am a senior, but if I was a retired policeman, teacher, fireman, nurse, or civil servant I would be worried that government retirement obligations to me would not be met, and that I would end up eating cat food.
Anyone who falls into the above category should take an afternoon off on their next visit to US and have a look at Pritchard, Alabama. They will come away shocked and depressed, for unless things change soon I suspect that is the future that awaits innocent retirees in Bermuda.
As for health coverage — go to church and pray.