A round up of news on Governments That Pay More Benefits Than They Can Afford and we're not talking Greece here.

South Carolina is getting some bad press for its public pension program. Its got a big pension shortfall ($38 billion owed, $24 billion in the till.)   It's being soaked by hedge fund managers for big fees. And by golly the "public servant" who runs the state pension fund drives a Lamborghini!

One of the rare articles that blames the people running the pension fund -- and the politicians ultimately -- for the mess. Among stellar moves, granting a 2% increase to public retirees  and bumping up the fund's projected  returns to 8% in 2008. (actual return: negative 28.7%)

Flashy sports cars make for great headlines -- honestly, I don't care what car he drives --  but nobody's interested in the obscure but real problem with public pensions, unrealistic assumed rates of return in a 0% bond market and a stock market that essentially flat over time in spite of daily gyrations of +/-  1% on any given day.

Lowering return assumptions means asking taxpayers for more taxes or bigger bond issues.  So if you need big returns, you're forced to go to the hedge fund alchemists.

South Carolina’s Pension Push Into High-Octane Investments

http://www.nytimes.com/2012/06/10/business/south-carolinas-pension-push-into-high-octane-investments.html?_r=1

Another story about yet another municipality on the ropes, North Las Vegas. The usual story about what the public employees did, and courageous politicians imposing cuts but unusual in mentioning some of the politicos folly. Like building a $130 million City Hall.  And a $300 million water reclamation facility. (Maybe developer-funded project revenue bonds were a better idea in hindsight?)

No doubt public employees need to be cut in N-LV, headcount up 50% in just two boom years. Coyotes and vacant lots don't need many public services. But dumb political decisions show up in a lot of these stories, only many paragraphs down.

North Las Vegas Crisis Shows Fragility of Nevada Economy
http://www.bloomberg.com/news/2012-06-08/north-las-vegas-crisis-shows-fragility-of-nevada-economy.html

And in case you missed it in the Wisconsin Recall Dust-up, the real battle was being fought in a left-leaning and a right-leaning city in California, as both San Jose and San Diego voted for pension cuts for existing employees. Repeat: existing, not future. The two cities are ahead of the State in figuring out that there's not enough money to pay for existing public employee benefits.  Stand by for the predictable court battles. I expect the courts to stand with the workers on a vested-rights theory. So bankruptcy may be the next option. The math isn't working here.

http://www.sacbee.com/2012/06/08/4546851/san-jose-san-diego-raise-bar-on.html

http://www.nytimes.com/2012/06/07/us/politics/san-diego-and-san-jose-pass-pension-cuts.html?pagewanted=all

My spin: A nice quiet period for the US. Low rates, out of the Euro driven flight to safety and the Fed's policy moves. Plenty of cover to issue cheap muni bonds. But the bad arithmetic is still there. IMHO, the Day of Reckoning is on the way for Cali, SC, NJ and most other under funded states.

I'm slightly long munis, but keeping my eye on the exit sign.

Just my opinion.