One of the most difficult aspects to deal with in the current Recession we’re experiencing is the dramatic population shift seen in many areas.

At a time when revenues generated from income tax and sales tax have fallen dramatically, institutions like cities, churches, and corporations have the added burden of seeing people move out of certain geographic areas, perhaps mostly due to job losses. In turn, then, the revenue those people would have been pumping into their local economies -- more sales tax at retail stores, more income tax, etc. – evaporates.

It’s a triple whammy for government institutions, which I think most people don’t realize. Not only are jobs being lost – which leads to people losing their homes and having to move – but the jobs that ARE lost are some of the best paying jobs out there. You don’t see McDonald’s and Burger King and Walmart laying people off, and for good reason – those are companies that have a relationship with the economy that is inversely proportional; the economy tanks, and these places flourish.

So the guy stocking the shelves at Walmart and the girl working the McDonald’s drive thru get to keep their jobs. The jobs that are lost are much, much higher paying jobs with benefits – white collar administrative jobs, engineers, architects, etc. And the truly difficult thing for state governments – and an ironic thing -- is that now you have a system where the minimum wage job earners are supporting (through unemployment benefits) the guys who were at the middle and top.

The poor are funding the middle class, in order for the middle class to maintain their standard of living.

I write about all this, I guess, because I’m something of a government insider, and more specifically, because we have people within the department I work for who previously worked with the state departments that hammer out many of our state’s budget details. So I was interested and relieved to learn than my specific department’s budget isn’t really tied directly to many of the factors of the economy that have decreased so much in the past two or three years. Our department gets most of its funding from gasoline tax, which despite what you hear in the news actually remains fairly stable over the long haul.

But this population decrease is difficult most notably, I think, for cities.

Detroit is the best example in Michigan. Thousands of people have moved out of the city of Detroit, which in turn means thousands of fewer students in their public schools. Which in turn means the city of Detroit has too many teachers. Which in turn means they’ve had to lay teachers off. Which in turn means they’ve lost jobs with benefits…which in turn has led those people to either move or file for unemployment benefits if they can’t find jobs…

And so on.

What I can’t figure out is why no one – as far as I know, anyway – has stood back, taken a broader view of the problem, and made a public plea for a hard core restructuring of our governments and our tax and revenue system to deal with this problem, the problem of how to deal with shrinking revenues in the short term to survive over the long term.

For example, part of the problem with funding schools is how closely school funding is tied to population itself. This isn’t, in itself, a bad thing. If a school has more students, it needs more teachers, so it gets more funding. That’s obvious. But we don’t step back to wonder what we’re going to do when the sort of dramatic population shift that we’ve seen occurs at a city-wide level. What do we do when more and more parents move to the suburbs and to private charter schools? Or when the economy tanks like it has, and people move out of the state altogether?
Why aren’t schools allowed to plan for this? Why can’t they include in their budgets funding for just these sorts of shortfalls???

The only plan we’ve had is to lay off teachers. To tighten our belts. To buckle down.

State government is much the same way. We don’t let individual departments budget their own money. While departments can spend, they can’t save – they have no chance to plan for the year-to-year ups and downs of revenue changes.

Why don’t we allow departments to save, to invest? To plan long term???

About fifteen years ago, the State of Michigan finally began the long, slow crawl away from pension systems for retirement plans – from defined benefit plans, in which employers pay out retirement benefits based on an employees years of service and their pay scale, to defined contribution plans, in which the employer and employee pay into a 401K or other investment plan which the employee gets to keep regardless of whether he keeps his job, gets laid off, or finds another job with another employer.

It’s a better system, in a sense, but it’s only a tiny piece of the pie. General Motors still has an uncertain future because of these defined benefit ‘legacy costs’ as they’re called in the press. GM will ultimately fail – just my prediction as an outsider, I suppose, but consider: my grandmother draws retirement benefits from General Motors right now.

It’s 2009. My grandfather worked for GM in the 1950’s and ‘60’s.

So fifty years later – fifty, five decades -- my grandmother, who lives with my parents due to her declining health, still gets a monthly paycheck because my grandfather worked as a window installer for Buick while Eisenhower was in the White House.

This system can’t sustain itself, and it’s obvious why GM has repeatedly bottomed out over the last few years. To earn the title overused by the press and the pundits – viable -- GM will eventually need to buy out all those remaining pensions with a one-time payoff, most likely with government assistance. Or it will go broke.

So what’s astonishing, I think, is that even seeing the problems so many companies like GM are going through, we still don’t get the urgency of the problem. It isn’t just that pensions are bad (why didn’t companies like GM consider keeping pensions, but making them more affordable? why not simply pay out pensions for a specific time period – say, twenty years of pension for twenty years of service, and at a rate the company could afford???) The problem isn’t just that we’re losing revenues from our tax base – that always happens, eventually, just as the stock market goes up and down. The problem isn’t that we don’t have enough money now.

The problem is that we never thought about the possibility of not having money now. Or that we never planned for it happening.

We never plan for viability. Not over the long term.

There is hope, I think, for several reasons:

1) Several countries in Europe are going through some pretty frightening problems right now – Germany has been in a long-term population decline over the last several years due to fallen population rates leading to some labor difficulties, and France has found itself bankrupted by years of short-term payoffs without long-term planning – and I think we can and will learn from the mistakes of many countries like these (when a country like France goes broke, it means more to us – whether right or wrong -- than seeing the people of say, Zimbabwe, a Third World country, experience the same thing;
2) The market provided a tremendous wake-up call to people when it began to decline a couple years ago, and I think this time, with a different President in office, we may actually have the guts to regulate what should have been regulated all along, hopefully still allowing markets the flexibility they need to thrive;
3) We’ve seen people actually begin to save more than they’re spending for the first time in decades. I think we get it; we just feel powerless as individuals to get our government officials to see the same thing we’re seeing.
4) My generation has never been in a Recession like this before; we’ve never been told ‘no’; we’ve never had to learn how to spend less; we’ve never had to budget for the long term. And yet we are doing just these things.

I’d love any comment you’d have on this idea of viability. I think the more dialogue that’s out there, the better off we are.

Of course, forty years from now, I’ll most likely still be drawing a pension…

And payments from my 401K…

And Social Security benefits…