The question of how to pay for generous benefits is proving a challenge to New York and many other states whose revenue has fallen and whose debts have become harder to manage, while public officials try to limit the kind of deep service cuts that often mean political death. Some hard-pressed governments are belatedly coming to the grim conclusion that they have promised workers more than their sagging economies can deliver.Ya think?
We have become Greece and our politicians have put in laws to prevent our fixing the problems. Those laws must be changed.
Outside the United States, Greece and Spain have recently reduced government pensions to deal with burdensome debt that has impeded their ability to finance themselves. The new British coalition government has said it will review public pension costs there as well.The logic of those generous pensions is full of holes.
Municipalities in this country cannot easily follow suit even as financial problems mount, though, because reducing benefits for their existing employees is considered impossible under the current laws of most states.
The New York State constitution bars public employers from slowing the rate at which workers build up their pensions over the course of their careers. That degree of protection contrasts sharply with the private sector, where companies can generally change the rate at which workers build their benefits at any time. Furthermore, as companies have reduced pensions substantially over the last two decades, states and cities have embellished theirs with sweeteners like inflation adjustments and lower retirement ages that appealed to unions and their members, who vote.
Census data from 2008 shows that the typical state or municipal pension is substantially richer than the typical company pension — $15,941 versus $7,904 — for retirees aged 65 and older. By tradition, public employees have said they accepted lower salaries in exchange for better benefits, but the Census data show this has not been true for a number of years. In 2008 the median pay for a worker in the private sector was $39,877, compared with $45,124 for a state or local employee. The data show broad national aggregates that do not try to compare similar occupations.And we are now facing the reality of having to cut jobs today in order to pay those benefits for retirees.
And, while companies must adhere to uniform federal guidelines about setting aside money to pay pensions, states do not. Some, like New Jersey, have failed to fund their pensions for years and have fallen so far behind they may never catch up again. New York City and New York State have been more diligent about contributing the required amounts each year — but the required amounts now turn out to have been too low, in part because they counted on solid investment returns that have not materialized.
In Yonkers, contributions to the state pension fund keep rising. This year, to save money, the city is proposing to eliminate about 90 police jobs, out of 640. The savings, though, will not even cover the extra cost of the overtime-enriched pensions. Meanwhile, the police say the layoffs will make the situation worse, because shrinking the police force means those who remain must work even more overtime, driving up pension costs even more....It's a vicious cycle. And unemployment will remain high meaning that revenues won't be coming in to state and city budgets so they'll continue to be unable to both cover their pension needs while accomplishing other responsibilities.
In Yonkers, contributions to the state pension fund keep rising. This year, to save money, the city is proposing to eliminate about 90 police jobs, out of 640. The savings, though, will not even cover the extra cost of the overtime-enriched pensions. Meanwhile, the police say the layoffs will make the situation worse, because shrinking the police force means those who remain must work even more overtime, driving up pension costs even more.
Voters need to demand that politicians address our pension crisis. Laws and pension agreements need to be adjusted. But our politicians are afraid of dealing with the backlash from the SEIU and other public employees unions so we keep twiddling our thumbs on our way to financial collapse.