How prudent is it to base your income assumptions on something as volatile as the stock market? How realistic is it to set your ongoing spending on income that may or may not be there in the future? I recall years ago the City of New York was in fiscal trouble. It was partially bailed out by a one time infusion of money from the federal government. The City promptly hired 3,000 new police officers with the money – temporary funds/permanent ongoing expense … get the logicâť“
Well, this article is close to the same thing. States have set their budgets and expected revenue on not only relatively stable taxes on regular income, but on taxed capital gains… which haven’t materialized as estimated. And look at New Jersey … again. And you wonder why public pension funds are so underfunded. Public officials play games with pension funds and in the process hide their incompetence from the public. The pension funding should be required under all circumstances with any budget short falls coming from cuts in other spending. That way the public sees how mismanaged things really are and, in many cases, how generous pensions are unaffordable.
New Jersey officials must come up with cuts or delay payments to pension funds or other expenditures after revenue fell $807 million below projections this fiscal year. In Pennsylvania, where Gov. Tom Corbett, a Republican, is locked in a tight re-election race, officials recently projected a shortfall of $425 million through April. Kansas saw income-tax revenue for April drop by half from a year earlier, falling $90 million short of a forecast.
On Wednesday, New Jersey Gov. Chris Christie blamed his state’s shortfall in part on botched projections that failed to fully account for the drop in revenue from capital gains and income tax. A day earlier, Moody’s Investors Service downgraded New Jersey’s general-obligation debt by one notch, citing the state’s budget troubles.
“Our economists underestimated what the effect that would be on the 2013 tax year, and it was a big one,” Mr. Christie said at a forum in Washington, D.C. Excerpt from WSJ article, Income Tax Yo-Yo Hits U.S. States
QUINNSCOMMENTARY 
Dick, simply this is collusion between the represented employees and the public officials. It has been going on for decades. And, it makes no difference were it subject to ERISA, because the same “wink, wink” process (overpromise with no willingness to fund properly) has been in place for decades for private employer plans – see General Motors, etc. which needed a massive taxpayer bailout (pension and retiree health care) as part of their bankruptcy/restructuring. Compare the result for UAW retirees with salaried GM retirees.
In fact, UAW officials admitted over 40 years ago that given a choice between funding the promises to date or promising more, they would choose the latter, with the hope that money would materialize to fund the payouts. So, they learned nothing from Studebaker.
See: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=290812
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Right you are. I guess they learned that between PBGC and the govt. in general somebody would bail them out. I wonder if I should start selling my municipal bonds. LOL.
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Obviously you live in an expensive “tax and spend” state…
my guess would be either east or west coast state or maybe
Chicago area.
I bet you can guess my state too… lots of people and businesses
from other states moving here. Low taxes and a good economy
are major reasons.
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Ten miles from NYC
Dick
Richard D Quinn Quinnscommentary.com
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As I mentioned, the sales tax here is also high, but food is not taxed.
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I live in a “right to work” state that doesn’t tax personal income…
and keeps billions in a rainy day fund thanks to oil and gas revenue.
Here sales and property taxes are high [those who live McMansion
lifestyles pay more] So, it is spending that’s taxed more, not income.
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What do you consider “high” property taxes. Say a 2,000 sf house on a 50×120 lot?
Dick
Richard D Quinn Quinnscommentary.com
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My 2200 sq ft house is in nice older urban neighborhood.
The local tax district appraises it at about $125,000 [yes,
real estate prices are much cheaper here.] I pay about
$2900 in property taxes each year [that includes city,
county, and school taxes.] There is no “state” property tax.
I get a “homestead” [meaning it is my primary residence]
discount on my property tax and those who are over 65
and/or disabled get an extra discount and tax caps.
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Well, I guess it’s all in ones perspective. My house was built in 1927. It’s about 2000 sf no family room, no finished basement, no walk in closets or en suite master bedroom … and it’s on a 50×120 lot and the property taxes are $12,600 a year and going up about $300 this year. That’s to support county, local town and schools and does not include water or sewer which are bullied separately. I wish I had your high taxes.
Dick
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Wow… that is a high property tax !
I assume the value of your home is a lot more than mine.
Do you also pay a state income tax on top of that high property tax ?
If so, I’d be moving 🙂
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Up to 9% income tax, 7% sales tax on top of property taxes. The assessed value is higher, but that is a reflection of the cost of living.
Dick
Richard D Quinn Quinnscommentary.com
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Sales tax here is 8.25%… food is exempt from tax.
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