D. Dowd Muska


State and Local Retirement: Same Old Horror Story

December 11, 2014

Scenes from a nation unwilling to face its bureaucrat-pension crisis:

The New York Times found that despite increasing its annual retirement payment “more than 12 times from the city’s outlay in 2000,” the Big Apple’s “pension hole just keeps getting bigger, forcing progressively more significant cutbacks in municipal programs and services every year.”

• A Massachusetts educrat convicted for possession of child pornography was allowed to keep his monthly pension of $2,393.78. The Bay State’s top court ruled that while an email address supplied by the state’s department of education was used obtain the smut, “a teacher’s conduct that fails to reach inside the school house doors does not satisfy the standard for forfeiture.”

• Moody’s Investors Service named Illinois, hobbled by a liabilities-to-revenue share of 318 percent, as the state with the worst total pension obligation in the nation.

• In what The Arizona Republic called “a major victory for city labor unions,” Phoenix voters rejected a proposal to block pension spiking and shift newly hired workers to defined-contribution plans.

• Standard & Poor’s downgraded Pennsylvania’s general-obligation debt, citing, as one cause, “growing expenditure pressures due to inaction on pension reform.”

• A profile of double-dipping by The Toledo Blade exposed a “loophole in Ohio pension law [that] allows employees … to collect a pension check from a state public pension fund while at the same time collecting a paycheck from their public employer.”

• Wheeling, West Virginia moved to hike its sales tax by a half-cent, in an effort to address ballooning pension expenditures for police officers and firefighters.

• John L. Smith, a columnist for the Las Vegas Review-Journal, likened Nevada’s university system to a “Democratic Party Full Employment Act,” since a former attorney general was already on the payroll, and a former treasurer was inquiring “about the possibilities of a six-figure position at UNLV.”

• Officials with the Kentucky Teachers’ Retirement System asked state legislators for a 30-year, billion-dollar bond to buttress the plan, which has only half the funding needed to meet future obligations.

The Virginian-Pilot denounced three fresh examples of the “long history in Virginia of part-time legislators bowing out of elected office and moving into full-time positions that exponentially boost their income and pad their state pensions.”

The Great Recession, coupled with wider awareness of out-of-control benefits for “public servants,” should have instigated serious reforms of the costly and unsustainable goodies given to government retirees. It’s now clear that progress was paltry. Pension-padding and double-dipping remain commonplace. Eligibility rules were not tightened enough. Far too few 401(k) plans have been adopted. And politicians, unsatisfied with the benefits acquired through legislative gigs, still feel entitled to boosted pensions through windfall sinecures.

The greatest frustration? No savings were achieved through meaningful right-sizing of bureaucrat payrolls. Between 2007 and 2012 (the last year for which there is U.S. Census Bureau data), the number of state employees fell by 1.2 percent. The comparable decline for local government was 3 percent. Cuts of 10 percent weren’t much to expect, considering the circumstances, but gutless governors, state lawmakers, mayors, city councilors, aldermen, and selectman didn’t dare try. They recognize the political muscle of public-sector unions.

According to the actuarial firm Milliman, the unfunded liability of the 100 largest government pension plans is $1.2 trillion -- and rising. Kentucky’s aforementioned teacher system has a funded ratio of just 25.8 percent. Other standout deadbeats include the State Employees’ Retirement System of Illinois (34.2 percent), Teachers’ Retirement System of the State of Illinois (40.6 percent), Connecticut State Employees Retirement System (41.2 percent), State Universities Retirement System of Illinois (41.5 percent), and Indiana State Teachers’ Retirement Fund (45.7 percent).

Writing in The Wall Street Journal, the American Enterprise Institute’s Andrew G. Biggs noted that last year, “nearly half of state and local plan sponsors failed to make their full pension contribution.” Such dereliction is sure to continue, as lobbyists for Medicaid, preschool, and postsecondary education demand more from public-sector budgets.

It gets worse. To this point, our discussion has focused on the unpaid bills for pensions. Other post-employment benefits (OPEB) -- which include healthcare coverage and life-insurance policies -- tack on another trillion-dollar burden. Lump-sum payments for unused sick and vacation time add to the insolvency.

The stock market has rebounded. Gasoline is relatively cheap. There are encouraging signs of job growth. Will the good news make citizens more or less interested in how government spends their earnings?

Nothing to see here, folks. Move along. Just remember to keep paying your taxes.

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

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