EnduringSense

“The price of apathy towards public affairs is to be ruled by evil men.” Plato

  • Daily Quote:

    "Intolerance is itself a form of violence and an obstacle to the growth of a true democratic spirit."

    Mahatma Gandh

  • Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Join 95 other followers

  • Subscribe

Public Sector’s Pension Calamity

Posted by Steve Markowitz on March 23, 2014

The discussion of America’s debt and whether one is concerned with it is often dependent on basic political philosophies.  Those who champion big government and its spending often argue that the federal deficits don’t matter for a wealthy country like the United States.

Progressives have used as a proof statement that America’s debt is not a problem the fact that while our debt has exploded, the Country continues to be able to borrow money at historically low rates.  To these believers in alchemy, the fact that the Federal Reserve is buying much it the debt and therefore artificially pushing down interest rates is of no concern.  The fact that history has shown sovereign debt is never a problem until it becomes one, as it inevitably does, is lost on these folks who believe this time to be different.

Much of the discussion concerning America’s debt challenges does not include the debt off the country’s balance sheets including entitlements such as Social Security and Medicare.  Similarly, the pension obligations of the federal, state and local governments are ignored until they drive municipalities into bankruptcy.  However, these pension obligations are huge and are already causing strains in municipalities throughout the country.

Boston Globe writer Jeff Jacoby published an article titled “Public-sector pensions are eating taxpayers alive” that correctly reviews some of the problems governmental pension obligations are causing.  Jacoby shares the following data:

  • It is estimated that all states currently have a long-term unfunded pension liabilities of more than $4 trillion.
  • Some cities have had to file bankruptcy to get out of their unaffordable pension obligations including the Vallejo, CA, Detroit, MI, and Central Falls, RI.
  • Annual retirement payouts for public-sector workers can be up to 90% of their former salaries.  The average career government employee that retires today receives pension benefits equaling 87% of their last working year’s total salary.
  • In the average state, career government employees receive a combination of pension and Social Security income that is higher than 72% of that states full-time working employees.

Unlike the federal government that has so far been able to overspend by printing money, states and municipalities do not have this luxury.  Unless they declare bankruptcy, they are by law required to make the pension payments and can only meet these obligations by cutting basic services to their citizens, their main reason for existence.  This reality gives quick visibility to the states and municipalities pension problems, once they become burdensome.

How did states’ and municipalities’ create these pension demons?  The answer is simple; pure politics.  When pension benefits are initially given or increased, their cost is hidden in future obligations that can be made to look small by paying financial magicians to come up with unrealistic assumptions on pensions’ long-term returns.  Therefore, politicians trade pension favors to public-sector unions in exchange for their votes that keep the politicians and their bureaucrats in power.  And yes, these folks also get their pensions increased.

The piper is now demanding payment on the excessive states and municipalities pension obligations.  As Jacoby points out, this reality has created unusual bipartisanship.  Some municipalities and states with the largest pension obligations have historically been run by Democratic mayors and governors who continue to maintain little power.  They realize that their governments can no longer supply the public services that Progressives so often promote until and unless these pension obligations are brought under control (decreased).  Liberals who have come out promoting the need to cut these pension obligations include San Jose, CA Mayor Chuck Reed and Chicago’s mayor Rahm Emanuel.

While the pension problems for states and cities can result in catastrophic cuts in governmental services in those localities, the government workers who obtained these benefits are not the problem.  The culprits are the politicians who were/are more concerned with preserving their own political power and wealth instead of serving the long-term good of the people.  Irrespective of this reality, it will be difficult to put the genie back in the bottle.  It is understandable that governmental employees, especially those near retirement, do not want their benefits cut.  However, economic reality will demand such action.  The longer it takes to make these difficult political/economic decisions, the more significant the cuts will ultimately be.

Advertisements

One Response to “Public Sector’s Pension Calamity”

  1. lee stadele said

    Steve

    Our local paper published the municipal taxes rates for New Jersey. Our property taxes are the highest in the USA.

    Pensions for municipal employees are a huge factor. A recent publication outlined the pension costs for a NJ police official as follows: $150,000 (apx.) for vacation/sick days not used. Check issued within 30 days of retirement. Annual pension, $97,000+ per year including Health Insurance and other benefits. This officer retired at 54 years old after 30 years of service. His pension benefits will easily exceed $2,000,000-$3,000,000 without any number of ‘hidden’ benefits or survivor payments. Obviously, even a small town in New Jersey with 20 retired police and another 30 or 40 employees cannot sustain this burden.

    Lee

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: