D. Dowd Muska


Bureaucrats’ Golden Years Gold

March 20, 2014

Beset by constant frustrations and outrages at work? Be thankful you’re not Andrew G. Biggs.

A former top wonk for the Social Security Administration, the economist analyzes compensation and retirement issues for the American Enterprise Institute. His latest research, “Not So Modest: Pension Benefits for Full-Career State Government Employees,” adds to the lengthy indictment of the “public” sector’s selfishness.

The paper starts by dispatching a junk stat. The American Federation of State, County and Municipal Employees asserts that “the average AFSCME member ... receives a pension of approximately $19,000 per year after a career of public service.” The claim, Biggs notes, “is false.” The real figure is “roughly twice” the union’s estimate, “and in some states substantially higher.”

Retired bureaucrats with 30+ years on the job who receive checks from the Public Employees’ Retirement System of Nevada collect an annual average of $64,008. Alaska’s next, at $62,712. California, Colorado, and Connecticut round out the top five, with Mississippi ($14,844) ranking last.

Include Social Security, and retirement income for an “average full-career state government employee” in Oregon is 90 percent of the pay earned by a typical full-time worker. West Virginia (89 percent) and North Carolina (88 percent) are close behind, with only Maine and Massachusetts falling below 50 percent.

The “present value of lifetime benefits for full-career state government employees” inspires awe and vexation. Alaska, California, Colorado, Connecticut, Nevada, Oregon, Pennsylvania, and West Virginia produce public-pension millionaires.

Extravagant promises, combined with inadequate appropriations, weak (sometimes nonexistent) worker contributions, subpar investment returns, and the belated establishment of accounts for post-employment healthcare benefits have solidified a scary fiscal future for towns, cities, counties, and states. Last year, a Pioneer Institute number-crunch found that almost a third of Massachusetts municipalities had pension systems that were funded below 60 percent. A 2013 Pew Charitable Trusts examination documented a gap of more than $217 billion between what 61 cities “had promised their workers in pensions and retiree health care and what they had saved to pay that bill.”

In December, Vermont’s treasurer warned that no “funding source” exists to generate revenue for retired educrats’ healthcare expenditures. The State of Hawaii Employees’ Retirement System’s assets-to-liabilities share is at 60 percent; the Kansas Public Employees Retirement System, 56 percent. (Illinois, the worst, is at a dismal 34 percent.) Pew’s all-states, all-expenses estimate for unfunded post-employment commitments is $1.4 trillion.

Dealing with the shortfalls is painful. Some city suburbs, The Philadelphia Inquirer reported in July, “have had to double -- even quadruple -- their minimum pension payments for retired police officers and municipal workers.” The Pioneer Press found that at the turn of the century, St. Paul “paid about $5,000, on average, toward a pension for each of its police officers and firefighters,” while in 2012, “the tab was nearly $11,000.” Between 2004 and 2014, Connecticut increased inflation-adjusted state-employee retirement expenditures from $587 million to $1.3 billion. (For the same period, pension spending on government-school teachers rose from $321 million to $1.1 billion.)

Inattentive taxpayers and craven pols created the problem of runaway obligations to government employees. Reforms have been implemented in recent years, such as raising (or imposing, for the first time) worker contributions to retirement plans and modifying cost-of-living increases. But progress has been tepid, primarily due to the inescapable truth that salaries, which greatly impact pension income, remain far too high.

Data from the Bureau of Labor Statistics consistently show that pay for state- and local-government employees is excessive. In Cleveland, professionals in the metro area get a bump of 27 percent if they can secure a sinecure in the nonfederal, accountability-free sector. In the Denver region, service workers enjoy an appallingly cavernous 85 percent advantage.

Not much can be done to constrain the loot snatched by current and retired “public servants.” Courts aren’t in the habit of subverting the union contracts, state laws, and constitutional provisions that keep the largesse flowing. But elected officials have plenty of leeway to impose fairness on future government employees. “Collective bargaining” should be ended. Stripped of their coercive power, labor bosses would not be able to stop the adoption of pay schedules based on comparable private-sector work. A shift to 401(k) plans, rather than defined-benefit systems, is the third step. (Michigan and Alaska made the switch. Oklahoma’s about to follow.) Finally, post-employment healthcare, a rarity in the real world, needs to go.

The longer one looks at retirement perks in state and local government, the uglier they get. Paying the tab for the real income-inequality problem will require decades of sacrifice.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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