Public Pension Perversion

Public-sector Unions Bankrupting America

April 23, 2010

Washington Times - Usually it takes a national government to spend itself into a debt measured in the trillions. Yet it comes as little surprise that the same profligacy that pervades the corridors of federal power infects this country's 87,000 state, county and municipal governments and school districts. By 2013, the amount of retirement money promised to employees of these public entities will exceed cash on hand by more than a trillion dollars.

That's according to the Center for Retirement Research at Boston College, which earlier this month released a troubling analysis of 126 state and local pension plans. The center's researchers found in the wake of the stock market collapse that measures of pension program solvency hit a 15-year low with no signs of improvement on the horizon. This means taxpayers will be left picking up the tab.

The reason pension plans are headed toward financial disaster is simple. Ever-expanding public-sector unions have flexed their political muscle and larded up with lavish benefits to be be paid out decades from now. In a properly run, private-sector business, future retirement benefits are paid for using present-day contributions. This is not the case when lawmakers have the power to boost public-employee benefit packages while using accounting gimmicks to conceal and pass on the debt to future generations.

California's public-employee retirement system stands in the most perilous condition, facing a half-trillion in unfunded liabilities. That's not surprising when you consider a California highway patrol officer can retire at age 50 and collect up to 90 percent of his salary for the rest of his life. According to the agency's website, a typical officer's pay will reach $109,147 after just five years on duty -- an amount that can rise significantly with overtime benefits. That means a fit and healthy 50-year-old "retiree" who began work at age 20 would receive $98,232 a year from taxpayers for the rest of his life, and nothing prevents him from taking another government job to collect two paychecks. This form of double-dipping is rampant.

While most private-sector firms have trimmed their work force during the recession to achieve more efficient and profitable operations, public agencies have expanded. State and local governments employ about 15 million individuals, a figure that has jumped up 40 percent from 1992. By 2016, the number of state and local bureaucrats is projected to reach 20 million. Too many of these people are being promised far too much money, leaving state and local systems as bankrupt as Social Security, Medicare and other multitrillion-dollar federal entitlements.

To his credit, California Gov. Arnold Schwarzenegger considers addressing his state's "pension bubble" to be one of his top priorities. On Wednesday, he introduced legislation that would raise the full retirement age for new police hires to 57 and reduce the benefit paid in our example to $88,409. It also would reclassify billboard and milk inspectors as "miscellaneous" employees, instead of "safety" workers entitled to bigger handouts.

Despite the modest nature of the proposed changes, it's unclear whether California lawmakers have the backbone needed to pass the measure over the objection of the all-powerful union voting bloc. The rest of voters across the nation, the ones who will be paying for this mess, need to wake up and encourage legislators to reform public pensions before it's too late.

Even More on the Coming War Over Public-Sector Pensions

February 21, 2010

Reason Magazine - Via the Washington Examiner comes news of a brewing showdown in Fairfax, Virginia, where the school system is looking for a whopping tax increase to pay for teacher retirements and benefits. Here's verbiage from the Fairfax County Taxpayers Association (FCTA), which is against that move:

"The FCTA asked why the school board is urging the supervisors to raise taxes by $81.9M although only $9M is needed to pay for next year's expected increase in student enrollment.

"The school superintendent acknowledged that the reason is the increased cost in employee benefits, especially pensions. According to the schools' proposed FY2011 budget, employee benefits costs are increasing by $98M, of which $71M is for pensions and another $15M is for retiree medical benefits.

"The school board has been less than straightforward with the community about this. During her opening remarks at the forum, school board chairman Kathy Smith talked about cuts to band and sports, and bigger class sizes, but never acknowledged that the cuts were being made to pay for increased benefits costs. School board members urged the audience to ask the supervisors to raise taxes. If taxes are not raised, then the board will cut band and sports and increase class size to make the pension payments."

Whole thing here.

Hard-fact time: Taxpayers everywhere are shelling out many, many, many more real dollars per student for public education than they were 30 years ago (with no clear improvements in outcomes [see this and this]). Indeed, inflation-adjusted costs per pupil have gone up over 200 percent since 1970, while student achievement is flat (at best). Can you think of any other part of your life (especially one in the private sector) where you are paying twice as much for the same freaking outcome? Say what you will about rising medical costs, but the pills that cure our ills nowadays are so much better...

As we've noted here, this is a story that is only going to gain in regularity as the gap between public-sector and private-sector compensation grows (public-sector already has a 70 percent advantage!) and as private-sector workers increasingly fund their own retirements via 401(k)s.

The basic bargain about public-sector work, hammered out decades ago in a very different world, is supposed to be: You give up status, upward possibility, and compensation now for job security and payoffs later in retirement. That has never really been true and is certainly less so now. Yes, public-sector jobs offer more security than their private-sector counterparts, but compensation is also higher on average and the benefits, especially in retirement, are gold-plated to the nines. That bargain, which is unsustainable economically, is going to hit the rocks. The only question is: Who is going to pay? Taxpayers or the public-sector workers?

The chart shows that public (state and local) and private sector pay rose in parallel from 2001 to 2004. Then the lines diverged. Since early 2005, public sector pay for state and local government employees has risen by 5% in real terms. Meanwhile, private sector pay has been flat.

The Coming Public-Sector Pension Crisis

Originally Published on October 2, 2009

Reason Magazine - From the Cincinnati Enquirer, a report on the Queen City's criminally negligent funding of its workers' pension plan:

Although reforms that council adopted in June have shaved tens of millions of dollars off the city's long-term retirement costs, the revised projections make it clear that City Hall still faces daunting challenges over the next decade in funding pension and health benefits for nearly 7,800 workers and retirees.

To keep pace with projected expenses, the city's $26.4 million contribution to the pension fund this year would need to rise to $84 million in 2010 - a scenario that council members and other city leaders concede is unrealistic.

With the city facing a 2010 budget deficit estimated at $51.5 million, a shortfall that City Manager Milton Dohoney Jr. has warned is all but certain to force layoffs and worker furloughs, council likely will find it difficult to allocate much more to the pension fund than it did this year.

More here. Exactly this sort of scenario is playing out in a locality near you.

The causes of such shortfalls include bad stock market returns and a lackadaisical approach more generally to fully funding future commitments (why rob from today's funds to pay for tomorrow's bills, if tomorrow may never come or if a stock market boom will make it easier to fund it? and a governmental unit can always raise future taxes, right?). Read Jon Entine's February 2009 Reason cover story on public-sector pensions to get a sense of how off things are.

But a huge part is in the nature of the retirement and health plans, especially in the public sector. Retiring Cincinnati workers get up to 90 percent of the average of their last few years' of work and have generally small co-pay portions on benefits. More to the point, the defined benefit plan is yesterday's model, and one that was predicated upon many more workers per beneficiary than is likely to be seen ever again. Which is one reason why virtually all new retirement plans are based on a defined-contribution model, where companies and workers fully fund (or, same thing, are fully responsible for) their retirement benefits via a 401(k) or similar system.

The only real question left is who gets stuck with most or all of the bill for the sort of old-school program in Cincinnati and most other governmental units around the country: The people in it or the rest of us.

Public Pension Perversion

September 4, 2009

Daily News - There are many compelling arguments to reform the public-employee pension systems that threaten to bankrupt the Golden State. But there is none more motivating than the $100,000-plus pension club.

The simple fact that pensions have been perverted from their original purpose to be modest safety nets for historically underpaid workers into vehicles of wealth for professional politicians ought to move all Californians to outrage and demand immediate reform.

When pension systems gained widespread use in the early 20th century, they were small concessions to poverty, and being a blue collar worker meant being part of the working poor. Factory workers were paid pittances and had few, if any, benefits. Government jobs might have been stable, but they paid subsistence wages -- even to cops. Police officers often risked their lives for jobs that paid less than they would earn as janitors or bus drivers.

Things have certainly changed, especially in California and Los Angeles where government jobs and their lavish benefits are coveted by those in the private sector. And no perk is so revered as the pension benefit. The concept of putting in your 30 years and then spending the next 30 years doing nothing -- but earning as much as 90 percent of your highest paid working year sounds like a fairy tale to the majority of Californians just hoping to make it through the next year with a job.

But that's not even the most egregious perversion of public pensions. That distinction goes to the $100,000-plus pension club -- the thousands of public servants, many executives and politicians, enjoying their retirement years with six-figure pensions paid for by taxpayers who, for the most part, earn just a fraction of that.

A Daily News examination by reporter Troy Anderson found that even while governments are cutting back services and furloughing current workers, the number of public servants collecting $100,000-plus pensions has skyrocketed. In Los Angeles County, for example, there are 3,096 retired employees in the $100,000-plus pension club, up from 1,198 in 2004! And that's just one government.

There are also 3,088 school administrators and teachers in this exclusive club -- up from 427 in 2004.

The city of Los Angeles currently has 600 retirees collecting more than $100,000 a year -- and that doesn't even include the Department of Water and Power, which consistently has higher-paid employees than City Hall.

The list goes on and on. And it's a list that is threatening Los Angeles and the state with Third World status.

There is one thing wonderful about this $100,000-plus pension club, however: Its very existence and scope are abhorrent enough to spur reform -- even more so than the warning that governments face bankruptcy. Few people can see the merit of allowing professional politicians and executives, who earn a quarter-million dollars to run public agencies (into the ground, in some cases), to retire and continue to soak the taxpayers for six-figure pensions for the rest of their lives, while roads and schools crumble from lack of money.

The $100,000-plus pension club must be closed. It's too late to shut it down -- those in it will continue to get their payouts for decades to come -- but it can't be allowed to expand its membership one more year.