A new trend may be soon emerging called “red flight” to describe the rapid mass out-migration of residents from cities and counties that are insolvent due to inability to meet public employee pension obligations (i.e., cities that are “in the red”). Unlike the term “white flight,” this flight may span across ethnic or political colors.
A new study released by Northwestern University’s Kellogg School of Management forecasts that there may be future population flight from many of California’s large cities due to their inability to meet mounting public employee pension obligations.
The study states: “At the metropolitan level this is particularly stark, as residents can move to suburban areas in response to increased taxes and cuts in services in the urban areas. The fact that there is such a large burden of public employee pensions concentrated in urban metropolitan areas threatens the long-run economic viability of these cities.”
Out of 50 municipalities surveyed nationally that are in potential financial stress due to future pension obligations, 18 of them (or 36 percent) are in California. Pensions would eat up the following percentage of annual general fund revenues from the California counties listed below depending on a no-growth scenario or a growth scenario of 3 percent a year:
Even under the best-case estimate, many major California municipalities would be so financially decimated that it is doubtful that they could fund first-responder services and courts and make any debt payments at the same time. We are talking here about social meltdown.
The study also points out that this situation could be worsened by pensioner “run outs” into early retirement before the drawbridge of generous pensions is pulled up. The next California financial meltdown may not be from bank runs but pensioner “run outs” and resident “move outs” from those cities and counties running in the red.
The study reports that state and local governments are essentially trapped by the legal protections that are given to pension liabilities enshrined in the state constitution. The study warns that if this problem remains unresolved that losses to municipal bondholders may result.
Shifting government workers to water and power departments is unlikely to help much either. The city of Los Angeles shifted 1,600 employees in the past six years to the Department of Water and Power, but even it can’t cover the $183 million annual cost of these retirement packages.
Utility user taxes also provide a money conduit for municipalities to raid water and power utility funds and shift them into their general operating funds. This may be why expensive green power is being rolled out so aggressively and so fast over the voices of prominent scientists exposing global warming and carbon dioxide pollution as fraud. Green power may be a means to bail out broke municipalities before 2015 or 2020 rolls around. Green power could result in 40 percent to 60 percent higher electricity rates coupled with a 15 percent to 30 percent increase in water rates.
But even if Proposition 23 on the ballot next week should fail to suspend the imposition of green power on Californians, this does not factor in the likely mass hemorrhaging of municipal revenues from red flight. This basically means that people will “vote with their feet” if the pension crisis is unresolved.
The term “green power” may take on a double meaning (as in money) given its potential fiscal power to bail out insolvent California counties from overwhelming pension liabilities. But red flight is likely to win out eventually over green power in California anyway even if Proposition 23 fails to stop the forced rollout of green power and a Brown governor is elected.
Wayne Lusvardi writes about energy and water policy. He lives in Pasadena.
For reprint and licensing requests for this article, CLICK HERE.