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Monday, June 27, 2011

We don't have enough people working now to pay for those retiring

More and more Americans are discovering that we're responsible for paying increasing percentages of our tax revenue on pensions for public employees. Just as we can't afford the increasing benefits for Medicare and Social Security for retirees, we can't afford the pension promises that politicians have made. It's been too easy for politicians to buy off public employees with a promise that wouldn't have to be paid until years in the future. But now the bill is coming due and the money just isn't there. Steve Malanga looks at the crisis facing local communities.
Pensions are an enormous part of the problem. While pension payments now consume about 4% of state budgets, many municipalities are already spending 15% to 20% of their finances on pension costs. Earlier this year, California's Little Hoover Commission, a government oversight agency, observed: "Barring a miraculous market advance and sustained economic expansion, no government entity—especially at the local level—will be able to absorb the blow [from rising pensions] without severe cuts to services."

Costa Mesa, Calif. (population 110,000) made news earlier this year when it sent layoff notices to 43% of its employees. In 10 years, the city's annual pension bill increased to $15 million from $5 million and now consumes 16% of the city's $93 million budget. In nearby Anaheim, pensions already account for 22% of its $252 million budget. San Jose's pension costs for police and firefighters have quadrupled in a past decade. Without reform, the city estimates that its yearly pension costs, $63 million in 2000, will swell to $650 million in 2015.

Elsewhere the numbers are even scarier. Chicago's unfunded public pension fund liabilities are estimated by Joshua Rauh of Northwestern University and Robert Novy-Marx of the University of Rochester at $44 billion—nearly eight times annual city tax revenues. New York City's annual pension contributions were $1.5 billion (6% of city revenues) in 2002. They've exploded to an estimated $8.4 billion (18% of city revenues) in 2012.
He could go on and on. These cities had been increased hiring which only exacerbated the problem. But now the bill is coming due. So they are having to drastically cutting employment. Is that the solution that public employee unions prefer? They certainly like that solution better than having to accept any limit on their benefits.

As people start to understand the scope of this crisis, they will have less and less sympathy for the sorts of protests we saw in Wisconsin over a rather mild attempt to rein in the public employee unions. Wait for those scenes to come to your community as these pension promises start to kick in.

That is why Chris Christie deserves such admiration for leading the effort for a bipartisan effort to reform New Jersey pensions by raising the age of retirement and requiring greater pension contributions from government workers. The unions might find this sort of common-sense reform Hitlerian, but taxpayers are coming to understand the hole that politicians have dug for their communities in these overly-generous pension promises.

1 comment:

Terrye said...

I think the cracks began to form back during the dot com bust. Up until then people thought the markets would just go up and up.