The consequences of doing nothing would be painful. But they would be far less harmful than the consequences of an unconditioned federal bailout, which would mean massive new fiscal commitments at the federal level.
Unfortunately, leaders in Illinois and elsewhere are now talking quietly about the possibility of a federal bailout. Such speculation undermines state and local efforts to reform pension systems or make other hard choices. Why agonize over unpopular budget cuts or tax increases if the feds will ride to the rescue?
Bailing out state pensions would be astronomically expensive. According to a Pew Foundation estimate this year, the total unfunded liabilities of the 50 states’ pension funds amounted to about $1 trillion in 2008. Another recent study, by Josh Rauh of Northwestern and Robert Novy-Marx of the Chicago Booth School of Business, estimated that the unfunded liability was closer to $3 trillion. Adding the liabilities of municipal pension funds makes the total even larger.
If the federal government commits to bailing out state pension systems then several immediate thoughts come to mind.
One – a state pension is a voluntarily incurred obligation of the citizens of a particular state to its particular retirees.
Two – the pension systems of the different states are often very very different from each other in cost per individual. For there to be ‘dollar-equivalency’ in a federal bailout would require increasing/decreasing each state’s dollar payout per individual retiree.
Three – some states pay trash collectors, for example, salaries that go far beyond what an engineer or a registered nurse with a masters degree would receive in the private sector and these ‘strawmen’ garbage collectors frequently draw retirement pay that far exceeds private sector retirement benefits.
Four – by becoming involved in state employee retirement plans, the federal government, de facto, becomes involved in the negotiation of the benefits of state employees. This would make the federal government a negotiating partner with each state in its labor negotiations. This federal involvement would limit both each state and its state employees in its current freedom of negotiating maneuverability.
Five – this would grant the federal government sovereign authority over state-state employee retirement negotiations and quite likely, through ‘creeping intrusion,’ the federal government would become involved in a wider spectrum of state negotiations with its employees.
Last, but not least, by far – all federal employee retirements can and probably will be affected a massive federal bail out of state employe retirement plans.
Tell me if you can, “How do you equate the retirement pay and benefits and pay of a trash collector with the retirement pay and benefits of an Army or Marine Corps infantry sergeant who has risked his life and left his family at home for extended numerous times during his military service?”
A trillion here and a trillion there and pretty soon we’re talking some real money.
Take a good look at Congress’pension plan; it might shock you.
Who is going to bail out those of us who have to retire on our savings? We have no defined benefit pension. And we are getting zero percent interest on our savings thanks to economic stimulus to borrowers. When are we going to finally let another irresponsible entity go under a la Lehman Brothers?
IHS,
NW Bob
Somehow I feel that public pensions are a part of feeding a political machine. The next time a highway becomes a toll road or bridge near you relax and realize you are keeping the gears greased for one-party political domination. There was an excellent This American Life piece on public radio recently (Ira Glass) that talked about how states have used a series of gimmicks recently to keep functioning, such as legalized gambling, selling toll roads to investors, etc. The problem in New York at least (Glass’s example) is that they are running out of gimmicks.
All of these public perks have been justified, historically, for “preventing corruption.” If officials are spared any needs, they won’t be susceptible to bribes and other enticements.
So how’s that workin’ for us?
5. The NY Thruway was supposed to have been paid for by 1956, but it wasn’t. The tolls are still doing that today, and there’s no end in sight
The Bridge connecting the west bank of New Orleans to downtown generates nearly $20 million in tolls per year. It has spawned a work force of over 120 people with all the salaries, benefits, pensions, etc that $20 million/yr can buy. Various studies have documented that the vast majority of that army are of no use and certainly not needed to maintain the bridge.
But despite that, the army is still there as are the tolls.
I am taking wagers that the new mayor of Big Easy will be no more enthusiatic about tackling that patronage heaven than any previous mayor……..despite all the recent hand-wringing about the city budget and furlough days down at city hall for the clerical folks.
And then we the not-so-well known issue (at least outside California) of the lifetime pension of our state’s legislators.
“And then we have”