Politicians Acting Like Politicians- The Public Pension Mess
With states, municipalities and counties across the U.S. faced with yawning deficits and public pension obligations ballooning, these have been seen as areas ripe for reduction. Pensions and benefits of public employees are certainly out of whack with workers in the private sector, but the question is how did they get that way?
It was simply politicians being politicians. To get the support and votes of the public service unions, government officials agreed to pension and benefits packages that have been continually ramped up over the years, with little consideration of cost to taxpayers down the line. It’s usually the way politician’s think- if something helps them get elected or re-elected, they ignore the long-term ramifications.
In addition to the generous packages granted to public employees, insufficient funds were put aside to pay for them, with special accounting rules used to hide the deficiencies. These have been made even worse by the low rate of return on public pension fund money that has been invested. Instead of an annual expected return of about 8%, the funds are generating between 5% and 6%. This means that in order to pay for retirement obligations, either taxes have to be raised or benefits cut, neither one of which is a happy course for elected officials. And it has been estimated that underfunded public pension obligations run into the trillions of dollars.
The problem is not only with the pensions and benefits that have been granted to public employees, but the retirement ages at which these kick in. Policemen, firemen and some municipal sanitation workers are able to retire after twenty years, often with 50% of their salaries as part of their benefit packages. This means that workers can retire in their early to mid-forties, with payouts continuing until they die; possibly forty or more years. One can imagine the burden this places on the pension system. And if they work another five to ten years, they may be able to retire with full salaries. The amount of their yearly stipends after retirement is usually determined by their income in the last year of work, or perhaps an average of the last three years. To game the system, public employees work as much overtime as possible during those years, to boost their retirement income.
The pensions received by teachers, administrative employees and other public workers are not as bountiful as those mentioned, but may still be quite generous. They may be able to retire after thirty years of service, which can be in the early to mid-fifties, which still can mean thirty or more years of payment.
And governments also have to provide health care coverage to their retirees, which is another budget buster. It must be remembered that significant numbers of these people continue to work at other jobs after leaving municipal or state service, generating a second income for themselves.
In addition to Wisconsin and other states that have legislated reductions for public employees, citizens in San Diego and San Jose recently voted overwhelmingly to cut retirement benefits for city workers. We can expect more of the same in the future. Reductions in pensions are also being negotiated between public worker unions and governments, with the unions realizing they have little choice in the matter. And given the generous retirement packages of public workers and the difficult times that private sector workers have endured, with givebacks in salaries and benefits as well as layoffs, there’s been a serious split in the union movement between the two groups, with the latter providing tepid support to the former.
The fact remains that politicians agreed to generous benefits in the first place and public service unions were all too happy to accept them. If politicians had been more steadfast in their negotiations, and had made more realistic projections, the current confrontations would never have occurred.
em>A VietNam vet and a Columbia history major who became a medical doctor, Bob Levine has watched the evolution of American politics over the past 40 years with increasing alarm. He knows he’s not alone. Partisan grid-lock, massive cash contributions and even more massive expenditures on lobbyists have undermined real democracy, and there is more than just a whiff of corruption emanating from Washington. If the nation is to overcome lockstep partisanship, restore growth to the economy and bring its debt under control, Levine argues that it will require a strong centrist third party to bring about the necessary reforms. Levine’s previous book, Shock Therapy For the American Health Care System took a realist approach to health care from a physician’s informed point of view; Resurrecting Democracy takes a similar pragmatic approach, putting aside ideology and taking a hard look at facts on the ground. In his latest book, Levine shines a light that cuts through the miasma of party propaganda and reactionary thinking, and reveals a new path for American politics. This post is cross posted from his blog.
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