Pension Crisis

Government Officials Fiddle While Public Pensions Burn

Elected officials have arrived at a formula that suits them well: Never do today what you can do tomorrow. And don't do it then, either.


Images_of_Money / Foter / CC BY

If you're in the hospital with multiple fractures, a staph infection and a collapsed lung, you may not take great comfort when your doctor informs you that his last patient has it worse, being dead. Sometimes encouraging comparisons are not that encouraging.

So Chicagoans didn't break out confetti upon hearing that Standard & Poor's Ratings Services regard the city's fiscal condition as less dire than Detroit's. In other news, most residents of Baghdad were not killed by suicide bombers yesterday.

The S&P report is not exactly a burst of sunshine. It judges "both Detroit's and Chicago's budgetary performance to be 'very weak,'" and notes that debt service amounts to 12 percent of total city expenditures, only marginally better than Detroit's 14 percent. It points out that Chicago's public pension funds are badly underfunded, creating pressure for a tax increase.

In Illinois, public pensions play the same role for government that the iceberg played for the Titanic—being large, hard to avoid and potentially catastrophic. The Land of Lincoln, however, offers just a particularly lurid example of a malady that has spread across the country.

In state after state, elected officials have promised public employees retirement packages without securing the revenue needed to keep the promises. In Illinois, the state pegged its contributions below where they should have been for a long time. On top of that, lawmakers couldn't resist the temptation to borrow from the fund and skip contributions whenever it was convenient.

"Effectively, the state used the pension systems as a credit card to fund ongoing service operations," says the Center for Tax and Budget Accountability. The result is that now the state has large and growing obligations that exceed the money it has to cover them.

In 2012, Illinois' unfunded obligation was $187 billion, triple the size of the state budget. Even after the legislature agreed last year to trim benefits and boost funding, the shortfall amounts to $100 billion.

But there is plenty of company in this misery. More than 40 states have grappled with government employee retirement obligations in the past few years, but "many of them have simply deferred pension costs to the future," reports The New York Times. "And none have come close to closing their pension gaps quickly enough to keep pace with a rapidly aging—and retiring—public work force."

Stanford University economist Joshua Rauh says that not only have the states not made progress on the issue overall, they have actually expanded the gaping canyon they dug. By his calculations, the distance between projected benefits and projected resources has widened from $3.1 trillion in 2009 to $4 trillion today. "I can't give you a good example of a state" that has closed the gap, another expert told the Times.

But something will eventually have to be done, and the shape of that something is easy to discern. Either taxpayers will be compelled to hand over more of their earnings to the government or workers who accepted the terms of their employment in good faith will get royally hosed, or both. Barring some miracle that provides a windfall to pension funds, someone will be eating a steady diet of dirt sandwiches.

Public pensions represent one of the biggest, worst and most inexcusable policy failures of our time. This is not like invading Iraq, where we might conceivably have created stability, or the financial meltdown of 2008, which surprised even the smartest experts. This is math, where numbers either add up or don't.

The failure is the sort that gives shameless political pandering a bad name. Politicians can gain favor from public employees by accepting contracts that promise generous pensions. They can indulge other constituents by diverting the money designated for pensions. They can appease taxpayers by holding down taxes in the near term.

They can also get re-elected over and over, knowing that future lawmakers and constituents will be the ones to pay the price. Only an informed and alert electorate can prevent this kind of scam—and the complexity and dullness of the subject make such vigilance wildly implausible.

So when it comes to public pensions, elected officials have arrived at a formula that suits them well: Never do today what you can do tomorrow. And don't do it then, either.

NEXT: Brickbat: By Any Other Name

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  1. or workers who accepted the terms of their employment in good faith will get royally hosed,

    Government-sector workers accepted those terms in good faith? AHAHAHAHAHAHA!!!111!!!

    1. Well, they did expect those damn politicians to stay bribed…

      1. I still don’t get this belief that public sector unions control the political class. The unions blindly shovel member funds behind anyone with a D after their name, even though it’s been shown that their first act in office is to turn around and shiv the workforce for political points. It is just about the only campaign promise they make good on.

        1. The ‘Ds’ regularly shiv the public sector unions? Maybe I’ve been missing something, but I have rarely seen that happen.

          1. Take a closer look at New York some time. Unless you’re an appointee, or a local yokel, you’re in the firing line.

            1. I’m in New York. What you’re saying is that the unions shiv any politician who isn’t actively putting the interests of the union ahead of those of the people. That’s certainly an accurate statement.

              1. I’ve never seen that. I’ve seen blind stupid loyalty from the union political fund to leaders activly working against the workforce.

            2. who’s being fired? Even the worst of the worst teachers are going to a building to hang out all day, teaching no one and doing nothing of value.

              1. My wife is a elementary teacher for the city school system. Most of the incompetent teachers (especially black) get jobs in the central admin. The process is then to stuff the administrative office with the worst employees, admin makes the system wide decisions, and eventually you get a shit storm of incompetence.

          2. If he were suggesting that the union leaders shive the workers for their own aggrandizement, I might be willing to go along with that to a point.

    2. It’s a job, our prospective employer said “Here’s how you’ll be compensated for your work”. We believed them.

      While you may think it foolhardy to believe that a government will honor contracts it signed, Well, it’s the main assurance we have.

      1. The problem is they promised to pay you with money that isn’t theirs.

        1. All employment contracts involve the employer promising to pay an employee with money that isn’t “theirs”. The only difference is that the government employer makes the money through taxation/fees and most other employers through payments for goods/services.

          1. The money private employers use to pay their employees is indeed theirs. It is voluntarily traded for goods and services and, again, voluntarily distributed in trade for labor. At no point is someone being forced to give up their money (at least, if the business isn’t being subsidized by the government).

            People generally don’t give their money to governments voluntarily.

      2. My mother worked for a school district. I saw lots of cases where during contract disputes the union pretty much encouraged large groups of teachers from multiple districts to go to board meetings and intimidate the boards through strength in numbers. I’m not so sure that’s good faith.

        1. Funny, my union campaigned the membership to knuckle under and take the worse deal. I guess PEF is the Bizarro union.

          1. There was a time when a government job meant less pay but more stability, and a decent retirement. Today government jobs pay better than private sector jobs, and the pensions have increased accordingly, which is probably where much of the gap is coming from.

            I feel bad for you as an individual, uncivil, but as a group I really don’t feel that bad for you all. Remove your pension and you’re left with your salary, which is still higher than the median salary in the private sector (in general), and which you would then have to invest yourself for retirement, something that the private work force at large has to do.

      3. My wife works for the school system and they offered her a pension or 403B. I told her to take the 403b because she owns the money. Like most women she did the opposite of what I said and took the pension. Hopefully FL will stay solvent for the next 30 years.

        1. I told her to take the 403b because she owns the money.

          This isn’t strictly true. Employer sponsored retirement accounts still technically belong to your employer:

          Now in theory, ERISA requires the assets for these accounts to be kept separate from the company’s other assets in such a way that they are protected during bankruptcies, but there have been cases where a company was cooking the books and when it went down took the 401ks with them.

          403b can be even worse because, depending on the setup, they may be ERISA exempt.

      4. While you may think it foolhardy to believe that a government will honor contracts it signed, Well, it’s the main assurance we have.

        If you make a deal with the mafia, with sole resolution of any violations of the contract to be referred to a mafia don who will directly profit if the deal gets renegotiated in his favor, you shouldn’t be particularly surprised if the deal subsequently gets renegotiated in his favor, given the incentives implicit in that power structure.

  2. Whatever can be said about other public sector unions, any talk of negotiating in good faith obviously does not include police unions. As always, the police are in a separate class.

    1. +12 Kelly Thomas jurors

    2. There is no such thing as negotiating in good faith when leaders of a protection racket with good PR make promises they are not obligated to keep to recipients of those stolen goods.

      1. Well said prolefeed.

  3. “In Illinois, the state pegged its contributions below where they should have been for a long time.”

    I wonder who has had an overwhelming majority in the IL Legislature (both houses) and Governor’s mansion for almost all that time….? Must be the Tea Party. Oh, wait…

  4. In state after state, elected officials have promised public employees retirement packages without securing the revenue needed to keep the promises. In Illinois, the state pegged its contributions below where they should have been for a long time.

    Talk about an infuriatingly statist POV right off the bat.

    By “securing the revenue” Chapman means “stealing from people by making them fractional slaves”.

    By “contributions” he means “completely involuntary theft backed by force”.

    By “below where they should have been” he is arguing for raising taxes at a libertarian site.

    Quit reading after those first two infuriating sentences. What is this, fucking HuffPo?

    1. All he’s doing is reporting what the statist do, he’s not setting an agenda or providing solutions just merely saying what statists will do is not endorsing statism.

    2. Keep in mind he is writing for a Chicago Tribune audience. He may be somewhat of a statist anyway, but if there is any libertarian point at all, he needs to make it without blowing up progressives’ dumb brains, and show them how the statists are the bad guys.

  5. “lawmakers couldn’t resist the temptation to borrow from the fund and skip contributions whenever it was convenient.”

    1) how is the legal?
    2) where was the union? there must have been someone watching

    1. how is THIS legal

      1. In our government it is only fraud if there is a law that specifically says that certain situation is fraud.

        One of the biggest reasons people can’t wrap their mind around libertarianism. But we do need to convey that fraud is fraud no matter the situation and it will be punished accordingly in a libertarian state.

      2. That’s nothing. How about the ’13th payment’ made to Detroit retirees? That’s essentially a pension bonus of about 8% for retirees. Beyond what the citizens had committed to. They can do that, because. I think that explains it.

        1. I think there’s some words missing in your explanation. Because why?

          1. Fuck you, that’s why.

  6. I would point and laugh at those depending on public pension monies, if I wasn’t sure that any shortfalls will inevitably be covered by higher taxes.

    1. The only way taxpayers get stuck is if it’s hidden. So what do the Dems and media give to the establishment right to get them to keep quiet (the tea party can be ignored if the rest of the country agrees to it)? More H1B visas?

  7. I’ve worked for 3 states (WI, VA, NC). WI’s pension is fully-funded, but that’s not because the unions are great, it’s because they have laws that keep the pension from being raided (though I suppose a long, long time ago unions probably contributed to those laws being passed in the first place). As much as I miss the free money (didn’t have to contribute anything myself), dealing with the union was a hassle (my last job was in management, and I wasn’t impressed with the union even when I was a regular employee). Besides that, there was all the backlash against public sector workers.

    My next job was in VA, where I hated being forced to contribute 5% of my income to a pension even as I read headlines about how underfunded it was. Still, there was no union, and not the level of anti-public-sector sentiment that was going on in WI (probably because most state workers made below the median wage for their location, but also probably helped by the presence of a large number of highly-paid federal workers to take the heat).

    Now, in NC, I contribute 6% of my income to the pension, but I don’t mind because it seems to be a resonably good investment (certainly more so than union dues would be). Would I prefer to keep that money and invest it as I like? Definitely. A lot could change in the next 30 years, so I am contributing to an IRA so that I won’t be completely dependent on the pension.

    1. Don’t you get to skip paying SS if you have a government pension?

      That is 12.4% of your income, 6.2% from you, 6.2% of what your employer has to pay in the private sector.

      Being forced to pay 5 or 6% in that case is not any different than the rest of us.

      1. Nope, still pay/paid SS with all jobs. I think it’s only a small percentage of public workers who don’t pay SS (though sadly apparently some of those are the ones being burned by poorly-managed pensions).

        1. Ok, maybe not “sadly” if they saved a bunch of money over the years by not having to pay into SS.

        2. My wife’s father works for the state and he doesn’t have to pay SS, just into his pension, thought it was the same for everyone.

          In that case, yeah that sucks that you can’t just invest your own money where you’d like.

          1. But my state has a balanced budget amendment. Kind of hard to get 100s of billions off when you have to balance the budget year after year. I don’t think they’re having any major issues with the pension funds.

            1. IL just lies, plays games with the books, does not pay bills and borrows like a Third World government to “balance” its budget.

  8. So, if the government and the Fed weren’t pumping up the value of the stock market . . . not only would the “wealthy” investors be pissed, the middle class 401k holder and the cities and public service unions with pension funds would also be in a much worse state of liability.
    Convenient . . .

  9. That’s why here in Illinois the state motto is: Where’s Mine?

    Seriously, look at the Teacher’s union. They can retire at 55 and often take jobs elsewhere to scam another Pension. Even more common with School Administrators, who retire at 55 and jump to another state for a shot a pension there. The Chicago Tribune did a series of articles 5+ years ago and at that time the highest paid teacher in the Chicago area was a Driver’s Ed instructor at Lyons High School making $155K a year. This for a job that barely pays over Minimum wage in the private sector. The Trib showed how the scam worked where as long as you were in good graces the school Admin would bump up their salaries in the last few years before retirement to boost their payout.
    Pretty sad when most of these people make and retire on wages much higher than the average taxpayers footing the bill. In our school district the AVERAGE teacher salary per the district is $95K. No reason why their retirement shouldn’t be a 401K type plan.

    1. I’m a DoD contractor. I regularly see “triple dippers”. That is they have both a military and a civilian DoD pension (usually a percentage of the average of your last three), then they get a job in the private sector. The private sector salaries are usually pretty lucrative for an ex-civilian who just left the procurement side of DoD, so they just bank that or maybe buy a condo on a Gulf Coast beach. In fact, we just hired one of my customers, he is starting work this week.

    2. When I worked in WI (at 2 different state hospitals/institutions), I saw a lot of people working tons of overtime their last few years so they could end up with a bigger pension. And the local unions had negotiated so that the highest-senior staff got first dibs on overtime. I knew one CNA who was the most senior CNA in the whole hospital, and he was working 80 hrs/wk (with 40 being time-and-a-half) so that he could make up for the fact that he lost a big chunk of his pension in divorce. Now, there is an issue of why was there so much overtime in the first place, but with the seniority thing there doesn’t have to be a lot for 1 or 2 individuals at a time to rack up enough for a substantially higher pension payment.

    3. I thought the state motto was:

      Where our governors make the plates.

      1. Or

        “Where there are State run retirement homes for the Governors.”:

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  12. screw em

  13. This is the gravest economic problem facing the USA. I suspect that government and unions are hoping for a Federal bailout, namely the creation of something vaguely like PBGC, but covering state and local employees.

    I say that the only possible way forward is the following.

    1. All state and local govt. employees must be enroled in Social Security ASAP. The only certain health insurance in old age is Medicare.

    2. Pension benefits should never be a function of one’s highest pay over one’s career. Nor should overtime pay be taken into account. This would remove two enormous incentives to game the system.

    3. All state and local govt. employee pension plans should be shifted from defined benefit to something like 401k. The 401k accounts would be held at a low cost mutual fund provider, and NOT by one’s employer.

  14. People pay taxes during the whole time of labor activity and they do it to have enough money for living when they are retired. It is unfair not to give people this money as they deserved it. Anyway here is reliable source which will help you to get money when it is needed.

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