by Bill Butos
In December 2008 Princeton economist Alan Kreuger suggested “paying close attention to warnings concerning obscure, quasi-public agencies known by their abbreviations” and their “dull but critical functions”
Consider what follows a short “update” on one such quasi-public government agency that caught my attention. In a little noticed article in the Wall Street Journal on July 23, the Pension Benefit Guaranty Corporation (PBGC) agreed to assume responsibility of “$6.2 billion in pension liabilities …from Delphi Corporation.” Delphi just happens to be the holder of GM’s pension funds.
PBGC is yet another government mandated quasi-public that was created by Congress in 1974 to insure pension plans. It has tended to fly just below the radar screen, although in 2005 it bailed out United Airlines by assuming responsibility of $7.5 billion in pension funds. PBGC finances its operations mainly from insurance premiums (set by Congress) collected from participating companies and by income it reaps from its investment assets. It currently insures the pensions of 44 million workers.
Every year since 2001, the PBGC has run a deficit. In May of 2009, The New York Times article highlighted a ballooning PBGC’s deficit of $35 billion, up from $11 billion as of September 2008 (see). While much of its recent deficits can be attributed to the final crisis, PBGC’s bailout of Delphi does not seem to make much sense until we remember that the success of the Obama’s take-over of GM rests on ensuring that GM succeed. Integral to that plan was getting rid of the pension liabilities of 70,000 GM retirerees. The rub is that PBGC, like other quasi-public government sponsored corporations, is widely assumed to be backed by implicit government guarantees against bankruptcy. Given PBGC’s financial woes, a government bailout now seems likely. The July 23 Wall Street Journal article (linked above) estimates it will be about $100 billion.
Aside from that, the PBGC’s decision with respect to Delphi raises the government’s GM bailout to about $70 billion in taxpayer liability. So far, that’s about $2.3 million per active GM employee or $24,000 per vote Obama garnered in Michigan.
Despite whatever good intentions may have to led to creating PBGC, we can see how it is being used to service the interests and policy requirements of the Congress and the Administration. Producing little green cars will be declared a success, but only because the actual costs will have been discreetly transferred to taxpayers.