"Optimistic scenario: it's $1 trillion in unfunded liabilities," says Adrian Moore, vice president of policy at Reason Foundation about public-sector pensions at the state, county, and local levels. "More realistic scenario: You're looking at $2 trillion to $4 trillion in unfunded liabilities. That's a huge debt."
Over the past dozen or so years, Moore tells Reason TV's Nick Gillespie, state and local governments have allowed their payrolls be taken over by pension obligations. Rising pension costs have been a key factor in municipal bankruptcies across the country.
"If you go back to around 2000," explains Moore, "a typical city, county, or state in the Untied States would be paying around 15 percent or maybe 20 percent of its total payroll for pensions. Fast-forward a decade later, after they've made all these unsustainable promises and failed to make payments, and you've got places where more than half of total payroll is going to pay for pensions."
On top of that, many municipalities are skipping scheduled payments, assuming ridiculous rates of return on their pension funds, and increasing benefits for employees. Many cities also fail to rein in "pension spiking," a practice that allows savvy employees to retire on an annual pension that can be higher than their work salaries were.
Residents pay for pensions in more ways than higher taxes, says Moore. Runaway pensions have siphoned funds that would otherwise have gone to infrastructure such as fire stations, roads, and bridges.
Yet all is not bleak. While many cities still face legal battles with its employee unions, reform is not just possible but politically popular. San Diego, San Jose, Bakersfield, and Phoenix not only passed reform but did so through ballot initiatives.
Moore, who heads up Reason Foundation's pension reform programs, says that state and local governments can get their pension problems under control by switching from traditional defined-benefit programs to the defined-contribution plans that have become standard in the private sector and other proven reforms. But that can only happen when elected leaders deal forthrightly with the issue. Too often, says Moore, politicians instead make promises they know will only have to be kept long after they are out of office.
Shot by Todd Krainin and Joshua Swain. Edited by Swain.
About 8 minutes long.
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