Subscribe: RSS Feed | Twitter | Facebook | Email
Home | Contact Us

“There Are No More Paper Clips to Cut”

Posted by Larry Doyle on July 13, 2009 2:04 PM |

Can we afford public pension obligations?

If ever there were a political hot button, it is the issue of restructuring public pensions. I can hear the rumble rolling through cities and towns by my merely broaching this issue, but the fact of the matter is this topic must be addressed!

As with any debt, public pension obligations can either be paid in full or defaulted, devalued, or restructured. The public pension system in our cities, states, and towns is nothing more than the holy grail for a large swath of the electorate. Does the political power base in these districts have the courage to go down the restructuring road? In so doing, they potentially risk their own political lives given the strength of the electorate who are pension beneficiaries.

Why do I think restructuring pension obligations is a likely scenario? Very simply, there is only so far a mayor or governor can go with increased taxes and cuts in services. While I do not think restructuring pension obligations is an imminent development, I do think it will be part of the eventual reality of our new economy.

I see mounting evidence of this likelihood at a site I reference regularly, PensionWatch, which highlights:

That approaching wave of pension debt is bigger than it looks. The purpose of this site is to provide an overview of the multiple pension crises that are about to drown America’s taxpayers.

In my opinion, this story gets limited coverage because it touches the equivalent of the ‘third rail’ for politicians and their associates. Well, it is high time the population at large addresses these obligations. As USA Today writes, Our View on Retirement Benefits: Public-Employee Pensions Put Cities, States in Tight Squeeze:

Recent stock market declines have left public and private pension plans alike underfunded, but the problem is deeper for public plans because they offer bigger pensions and make them available earlier, particularly to public safety employees. Three-fifths of state-government pension funds owe at least 20% more money than they have. According to the National Association of State Retirement Administrators, the shortfall is $430 billion, or about $3,800 for every U.S. household. Other estimates put the number above $1 trillion. (LD’s emphasis)

The blame for this lies with vote-hungry politicians who promise rich retirement benefits from the wallets of future taxpayers.

Union inflexibility doesn’t help, either: In financially desperate Oakland, for example, where police starting salaries are $71,832 to $90,540 a year and pensions begin at age 50, the union rejects concessions.

Public-sector pensions already cost twice as much, per retiree, as the average private-sector pension, according to the U.S. Labor Department. This leaves cities and states no easy way out. They should not renege on their commitments, but the other options — raising taxes or cutting services — could prove so severe that bankruptcy would look like a sensible alternative.

I do not envision politicians willingly taking this issue on simply because the pension beneficiaries are typically their meal ticket to re-election. However, every once in a while we come across a politician who is willing to say he is not capable of “pulling the rabbit out of the hat.”

Scott Lang, mayor of the heavily Democratic city of New Bedford, MA, recently said as much. The Boston Globe reports Running on Empty:

Lang may be better remembered for his clarion call demanding structural changes in municipal government than for his performance in any specific area of city oversight. He is known for his candor, and he doesn’t disappoint.

“It’s absolute insanity. They’re unsustainable,’’ he says about pensions. “There isn’t the money to pay for an unfunded liability like that. All the revenues will be eaten up by past-due promises. Pensions have a 20-year schedule modeled after the industrial plan. It doesn’t fit today.’’

He says current pension and health insurance systems for city employees have to go, period. If not, they will destroy the city and its ability to maintain the services people expect like public safety. He calls for “pension relief’’ and “healthcare reform,’’ which in plain English means cuts.

“There are no more paper clips to cut.’’

To follow developing stories in the world of pensions, you can subscribe to PensionWatch from its home page, or even better you can access it here at Sense on Cents.

LD

  • Larry you are speaking my language with this subject. There is no doubt that the real issue for all levels of government is the “PENSION BILL.” My mother is going to retire shortly and I have told her to expect that her pension will be cut by 20-50% over the coming years. The truth is that the baby boomers have spent outrageous amounts of money and given themselves gold plated retirement plans to boot. Fortunately for us they no longer represent the majority of voters in America.

  • ed

    The choices needed will never be made by any politician. The declining economy will necessitate the reduction in pensions through bankrupcy courts. There is no other way around union contracts and even supposed constitutional guarantees. The further declines coming to the stock markets will be the nail in the coffin that is needed to fix these problems once and for all. Its not fair, but it is reality. Promises are broken every day by companies, so what is the difference if government does it?

  • Bull

    There is simply zero justification for private sector taxpayers to fund MUCH richer pensions and retiree benefits that afforded them through their employment.

    What … are private sector employees expected to work until age 70 so that civil servants can retire at 55 ???

    I think NOT !

  • I just read that Gov. Rendell of PA just enacted a program that allows state employees to borrow 15K at 0% in order to make it through the budget battle. God forbid he actually try and solve the problem directly and pass a budget, just dig in and villanize the republicans. Not that the republicans won’t do the same. There is no political will to do anything that will improve society if their is a political cost, until there is a crisis and then they just jam through inadequate change.

    http://www.earthtimes.org/articles/show/governor-rendell-announces-loan-programs,878095.shtml?FORM=ZZNR5






Recent Posts


ECONOMIC ALL-STARS


Archives