Monday, December 20, 2010

Public Pensions Must Go

Sixty Minutes' Steve Kroft had a compelling feature story last night on the pending insolvency state and local governments face due to unfunded public pension liabilities. "The most alarming thing about the state issue is the level of complacency," Meredith Whitney, one of the most respected financial analysts on Wall Street and one of the most influential women in American business, told correspondent Steve Kroft. Whitney expects dozens of government units in the country to default on their bonds within the next few years because of the problem. Kroft tells about the severity the pension problem poses for neighboring Illinois. Many state vendors are waiting six months or more to get their bills paid. State police are turned away by gas station owners who will no longer accept their business because of the state's well-earned reputation as a deadbeat state. "This is the state of affairs in Illinois. Is not pretty," Illinois state Comptroller Dan Hynes told Kroft. "It's fair to say that there are tens of thousands if not hundreds of thousands of people waiting to be paid by the state," Hynes said. New Jersey Gov. Chris Christie seems to be the only governor in the country who recognizes the problem's severity for what it is and is seeking a complete overhaul of his state's public pension system. In Illinois, corrupt career bureaucrats are artificially inflating their salaries before they retire in order to boost their annual pension payout. Highland Park's park district commissioners are investigating how large bonuses to the park district's former executive director and finance director have allowed them to receive annual pensions as high as a staggering $166,000!


Cato said...

APPLAUSE! This country really has become a place where if you want to make something of yourself, you'll get a government job. The salary, benefits, performance expectations and job security of government employment far outstrip the private sector.

We are all struggling to provide for ourselves. How dare we be forced to grant our servants lives of luxury and security that we will never know.

Give government workers the same retirement plan that one receives at a small private company.

Indy4U2C said...

Interesting thought, but there is MUCH more thought that needs to go into something of that nature...

Corruption as cited in Highland Park is easy to point out as abusive...and nobody will dispute that as improper.

However, remember that state & local government employees already on average earn less than persons in the private sector performing like job functions. And, of course, there are some government employees who perform such specialized functions that there is no like occupation in the private sector.

The things that must be considered are the balancing act of maintaining quality trained employees working for states and municipalities and retaining those quality employees. Retention would be difficult if they have no long-term benefit (pension) and they work for less wages than private sector counterparts.

A few examples come to my mind: I think having attorneys on the state and local government payroll probably saves TAX money that would be farmed out to large private law firms. It's already hard enough to find quality police applicants, after paying for their training, I don't want them to leave for a job in the private sector because they can make more money, and have better work hours selling mortgages, real estate, new cars, insurance, etc.

-Then we have higher taxes to replace/retrain new police AND less experienced police doing the job. This is a field where experience is very important.

Now the most contravercial: Teacher Retirement. I've not given that matter any thought, but it seems that matter is in the news frequently.

All in all, to say that public pensions must go is premature. Far more research needs to go into such a statement.

dcrutch said...

It was a chilling documentary piece. With genuine respect for the belief that more analysis is needed, that brings us to the notion of agreeing upon selective cuts in government.

Haven't the past few months and years made it clear that in this polarized political environment, there isn't going to be agreement? Certainly, not at first.

Any governmental/taxpayer-funded entity could have a few weeks/months to deliberate, but the default afterwards is across-the-board cuts and renegotiate targeted reductions later. The only exception I think we might agree upon is public safety.

These municipal bond faults could bring a very nasty cascade of events. It's imperative that we put forth the impression to investors, foreign and domestic, that we finally realize the party's over and we're cleaning-up.

guy77money said...

The worst part is that they forgot to throw school teachers, administrators and state college professors and administrators in the mix. All these professions get to retire at usually very good benefits at 30 years. Say you get one of these jobs at 22 and stay for thirty years you can be done working at 52 to 57 years old with (usually you collect the amount that equaled your top salary years) full benefits. They will collect around 7 to 12 years more of benefits then a private employee relying on social security and their IRA or 401K. This is tax g and property taxes paying these people. The only way these liabilities can be fixed is raising taxes. Somewhere along the way the state of Indiana and local taxing authorities will have to change how things are done or the state of Indiana will go broke. I think Indiana only has seven more years to get things together before the defaults start happening. Thrown in lower gambling revenues and the couple billion we owe the Feds for unemployment insurance and we're all screwed,

Cato said...

"However, remember that state & local government employees already on average earn less than persons in the private sector performing like job functions."

That is an outright lie. Government workers enjoy a minimum of a 20% bump over private sector employees, usually higher.

leland35 said...

Cato: You are misinformed. A clerk at the BMV, courtroom reporter in Marion Superior Court, or Attorney for the Alcoholic Beverage Commission make less than comparable in the private sector.

Cato, you are much confused. In Indiana state and municipal employees make less than the private sector. Check your facts before you blog.

Unknown said...

I think comparing public/private benefits on a macro level is ineffective.

You don't have politicians in the private sector, for starters. You also don't have cops and firefighters, outside of security guards and consultants, etc.

Indiana is actually in much better shape than many other states precisely because the pension benefits aren't all that great. Despite all the raiding done by politicians, the structure of a lot of PERF pensions prevents a lot of the shenanigans that you find from other plans.

Indy4U2C said...

State Highway Technician pays $27,800. ($13/hr)

State Pharmacist pays $47,866.00. (Private Sector 60-80k)

State Claims Deputy $27,500. ($13/hr)

State Snow Plow Driver (Indianapolis Area) $7.50/hr (seasonal).

Cato: You owe some apology and need to eat crow! Snow plow driver $7.50 and not year round employment???? If I had a 4-wheel veh w/plow, I could make $100+/hr. I'm aware of your leftist slant, Cato, but your post on this thread was over-the-limit!!!

My FACTS come from the State of Indiana web site got any fact for your wrongful assertion that local government makes close to private sector? Please state fact....otherwise, apologize!

Cato said...

Indy4U2C, let's look at just one of the occupations you listed:

"State Pharmacist pays $47,866.00. (Private Sector 60-80k)"

The Star database lists all the pharmacists in the State's employ:

Bushman, Deborah Lee RSH - Pharmacy Pharmacist 1984-06-25 $70,707.00
Meeks, Beth Ann Morgan RSH - Pharmacy Pharmacist 2006-05-15 $70,699.98
Mohr, John M LCSH - Undefined B Chief Pharmacist 1991-07-23 $79,189.50
Pasquale, Carol S LSH - Pharmacy Chief Pharmacist 1970-04-20 $85,429.50
Shirley, Carl Mark FSSA - Medicaid Policy & Plan Chief Pharmacist 1981-11-23 $79,189.50
Stover, Judith C RSH - Pharmacy Chief Pharmacist 1980-01-21 $79,189.50
Wright, Earl K MSH - Undefined B Chief Pharmacist 1994-08-29 $79,189.50

All are at the upper end of the pay range you listed.

As for being left-of-center, only in Indiana is reducing public spending seen as a leftist position.

Carlos F. Lam said...

The main problem with PERF is that the taxpayer bears the risk of market loss: if the fund is underfunded, the taxpayer has to kick in money. This relieves the employee/retiree of the market risk but leaves the employee/retiree with a HUGE risk of a different type: counterparty risk. Simply put, the employee/retiree is trusting the state to "make up" for any market losses, a rather dubious proposition in times such as these when non-government employees are having to put up with wage/benefit cuts.

I like Sen. Waltz's idea to transition new employees into the defined contribution PERF plan and to eventually give all employees the chance to switch their defined benefit "credits" over to the defined contribution PERF plan. This will require me to assume market risk, but I fear counterparty risk much more than I fear market risk.