LURCHING TOWARD BANKRUPTCY
November 23, 2011
Bringing up the subject of bankruptcy at Thanksgiving time is so uncouth. Yet, many individuals and several cities, towns and counties across the U.S. find this the current state of affairs.
Nothing speaks to the out-of-control nature of government more loudly and clearly than the lavish pension benefits promised to public employees. The extravagance centers on their underfunded nature: The pensions’ benefits are defined — defined high — and underfunded or even unfunded as the employment occurs, leaving many states, metro areas, cities and counties with burdensome funding commitments at retirement.
Many communities across the country now lurch towards bankruptcy.
Similar benefits are nearly unheard of in the private sector . . . the only exceptions being where union bargaining, backed by government guns, force big companies to contract similarly self-destructive deals.
It gets worse, though. These cushy pensions pile atop similarly plush wage and salary rates as well as medical benefits that outmatch comparable jobs in the private sector. Further, by double-dipping, retired public servants exacerbate the financial hit on taxpayers. It’s become commonplace in some locales for public employees to retire and begin collecting their lucrative pensions, only to re-enter the public workforce, receiving a full salary on top of the pension payouts.
An Illinois loophole proves instructive. Two employees of the teachers’ union, who had no prior experience teaching, were able to qualify for the more lavish pension paid to actual classroom teachers by substitute teaching for one day. One day! There simply aren’t any jobs in the private sector — which, by the way, produces the wealth that finances the public sector — where a person gets a lifetime pension for one day’s work.
How did we get here?
Simple. Public employee unions are not negotiating with their actual employers, the taxpayers. They bargain with politicians, who wish to please everyone today, as they seek votes for re-election, often without regard to what those costs will be tomorrow . . . when they’ll no longer be in office. Politicians appease today’s taxpayers by trying to hold down current labor costs while promising politically powerful unions amazing and unaffordable future benefits.
This public pension system cannot be sustained.
That’s not just the assessment of yours truly, but the frank admission of the California Public Employees Retirement System’s chief actuary. A number of cities across the country have already gone bankrupt. It’s becoming a recurrent news item, more common than children falling into wells.
What to do?
Not much can be done about the cushy benefits already written and approved in previous union contracts. But preventing utter calamity may be possible; a few obvious steps can be taken. Stop double dipping and extravagant unearned benefits. Switch new employees from fiscally ruinous defined-benefit pensions to a 401(k) system, the same retirement program most private sector employees have.
Simple? Yes. But also über-difficult. Public employee unions function as the largest source of funding and activism for the Democratic Party. In blue states, there’s fat chance that Democrat-controlled legislatures will cut the fat from their favored benefactors. In red states, Republican politicians are nonetheless wary of the awesome political power unions wield, and likely to watch to see how more courageous politicians like Wisconsin Governor Scott Walker end up.
But in 24 states, citizens needn’t wait in the wings, consigned to the role of spectators: They have access to the ballot initiative process and can petition their fellow citizens to place these necessary reforms on the ballot to be enacted directly by voters.
That’s what people in San Diego are doing, led by City Councilman Carl DeMaio, now a candidate for mayor. DeMaio is spearheading an initiative that earlier this month qualified for the June 2012 ballot against a barrage of union dirty tricks.
Public employee unions hired blockers to harass those circulating and wishing to sign petitions and even launched a massive advertising campaign, previously detailed in this column, attempting to scare San Diego voters away from signing petitions by claiming using their First Amendment rights put them at risk for identity theft. Longstanding anti-identity theft organizations lambasted the disingenuous union-financed radio ads, which somehow neglected to mention that in the history of California’s initiative process, with hundreds of millions of petition signatures gathered, there has never been an actual case of identity theft.
The unions don’t want to end their joy ride on the gravy train of excess bennies, regardless of the burdens placed on the city’s taxpayers. Now they’ll have to spend big bucks fighting DeMaio’s measure, which they know makes sense to voters.
In a city with a $2.7 billion total annual budget and a $2.1 billion deficit in its pension fund, the Comprehensive Pension Reform ballot initiative — dubbed “CPR” — would stop the hemorrhaging of the city’s financial future by ending the defined-benefit pensions for newly hired city workers. Instead, the city would start matching what funds new employees place into individual 401(k) accounts, the same retirement system most San Diego private sector workers have.
The measure also attempts to halt “pension spiking,” a practice whereby city employees can have their lifelong pensions calculated in relation to various specialty pays, bonuses, and other forms of compensation, which can cause retirement pay to be far higher than if based on their normal pay.
The CPR measure would also require current employees to pay more toward the cost of their pensions going forward, as a fair reading of state law already requires, and would provide taxpayers greater information about the payouts being made to city workers.
The point isn’t to punish public employees, it’s to stop punishing taxpayers. It also forestalls financial Armageddon by preventing extravagant pension benefits from eating up so much of the budget that city government’s chief purpose becomes to reward public employees.
As Carl DeMaio puts it, “City employee compensation should be no better, and no worse, than what is available to other employees in San Diego."
It seems like common sense. A rare commodity in today’s politics, and one usually brought to the fore by citizens through initiative petitions.
We believe that the Constitution of the United States speaks for itself. There is no need to rewrite, change or reinterpret it to suit the fancies of special interest groups or protected classes.