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State and local governments across America are increasingly strapped for cash. One major culprit is diverting money away from the essential services they provide, including police, fire, school, road repair, and emergency services.
That culprit is the excessively generous pensions and other benefits for public employees. Mary Williams Walsh of the New York Times tells the story of how one retired state government employee is collecting over $76,000 a month, or $912,000 a year, in pension benefits.
Joseph Robertson, an eye surgeon who retired as head of the Oregon Health & Science University last fall, receives the state’s largest government pension.
It is $76,111.
That is considerably more than the average Oregon family earns in a year.
Oregon — like many other states and cities, including New Jersey, Kentucky and Connecticut — is caught in a fiscal squeeze of its own making. Its economy is growing, but the cost of its state-run pension system is growing faster. More government workers are retiring, including more than 2,000, like Dr. Robertson, who get pensions exceeding $100,000 a year.
The state is not the most profligate pension payer in America, but its spiraling costs are notable in part because Oregon enjoys a reputation for fiscal discipline. Its experience shows how faulty financial decisions by states can eventually swamp local communities.
And swamp them they do. Walsh describes the fiscal impact on the communities who are burdened by excessive benefits being claimed by state and local government employees:
The bill is borne by taxpayers. Oregon’s Public Employees Retirement System has told cities, counties, school districts and other local entities to contribute more to keep the system afloat. They can neither negotiate nor raise local taxes fast enough to keep up. As a result, pensions are crowding out other spending. Essential services are slashed.
It’s not just Oregon. It’s happening in communities all across the United States, from Connecticut to California, where government services for residents are being cut to provide pension benefits to local government employees.
Worse, when many of these pension-strapped local governments go to the voters seeking tax increases to pay for things that many in their communities want, like higher teacher pay, they are instead finding that the new tax collections will instead be diverted to pay pension and retirement benefits to former government employees.
In San Francisco, the school board wants voters to approve a $298 “parcel tax” on real estate, ostensibly to raise $50 million to pay teachers a living wage.
“That’s a worthy objective, but it’s not the real reason,” said David Crane, a former trustee of the California teachers’ pension system. He said the school district’s retirement costs had grown by $50 million over the last five years, devouring resources that would have gone to teachers.
Walsh’s article goes on to describe how many bureaucrats gamed the system they crafted to guarantee their lavish retirements at the public’s expense. It’s well worth the time to read the whole thing.
As for how to fix the situation, state and local governments have few options. In many of the places with the worse fiscal predicaments, such as Connecticut, Illinois and California, local government employees hold a disproportionate share of political power, which limits the ability of fiscally responsible reformers to repair the situation. In many cases, it takes bankruptcy proceedings to provide the leverage needed to stop the bureaucrats from being able to place their personal interests ahead of the public that they claim to serve.
The system must, however, be repaired. At a minimum, laws must be imposed to stop fiscally abusive practices like public employee pension spiking and double-dipping, which is the right place to begin. Converting pensions from defined benefit to defined contribution programs, as are common in the private sector, would also go a long way to protecting communities from public employees by making their pensions fiscally sustainable.
Otherwise, excessively generous public employee pensions will be little more than a ticking time bomb for many communities.