Government Officials Fiddle While Public Pensions Burn
Elected officials have arrived at a formula that suits them well: Never do today what you can do tomorrow. And don't do it then, either.
If you're in the hospital with multiple fractures, a staph infection and a collapsed lung, you may not take great comfort when your doctor informs you that his last patient has it worse, being dead. Sometimes encouraging comparisons are not that encouraging.
So Chicagoans didn't break out confetti upon hearing that Standard & Poor's Ratings Services regard the city's fiscal condition as less dire than Detroit's. In other news, most residents of Baghdad were not killed by suicide bombers yesterday.
The S&P report is not exactly a burst of sunshine. It judges "both Detroit's and Chicago's budgetary performance to be 'very weak,'" and notes that debt service amounts to 12 percent of total city expenditures, only marginally better than Detroit's 14 percent. It points out that Chicago's public pension funds are badly underfunded, creating pressure for a tax increase.
In Illinois, public pensions play the same role for government that the iceberg played for the Titanic—being large, hard to avoid and potentially catastrophic. The Land of Lincoln, however, offers just a particularly lurid example of a malady that has spread across the country.
In state after state, elected officials have promised public employees retirement packages without securing the revenue needed to keep the promises. In Illinois, the state pegged its contributions below where they should have been for a long time. On top of that, lawmakers couldn't resist the temptation to borrow from the fund and skip contributions whenever it was convenient.
"Effectively, the state used the pension systems as a credit card to fund ongoing service operations," says the Center for Tax and Budget Accountability. The result is that now the state has large and growing obligations that exceed the money it has to cover them.
In 2012, Illinois' unfunded obligation was $187 billion, triple the size of the state budget. Even after the legislature agreed last year to trim benefits and boost funding, the shortfall amounts to $100 billion.
But there is plenty of company in this misery. More than 40 states have grappled with government employee retirement obligations in the past few years, but "many of them have simply deferred pension costs to the future," reports The New York Times. "And none have come close to closing their pension gaps quickly enough to keep pace with a rapidly aging—and retiring—public work force."
Stanford University economist Joshua Rauh says that not only have the states not made progress on the issue overall, they have actually expanded the gaping canyon they dug. By his calculations, the distance between projected benefits and projected resources has widened from $3.1 trillion in 2009 to $4 trillion today. "I can't give you a good example of a state" that has closed the gap, another expert told the Times.
But something will eventually have to be done, and the shape of that something is easy to discern. Either taxpayers will be compelled to hand over more of their earnings to the government or workers who accepted the terms of their employment in good faith will get royally hosed, or both. Barring some miracle that provides a windfall to pension funds, someone will be eating a steady diet of dirt sandwiches.
Public pensions represent one of the biggest, worst and most inexcusable policy failures of our time. This is not like invading Iraq, where we might conceivably have created stability, or the financial meltdown of 2008, which surprised even the smartest experts. This is math, where numbers either add up or don't.
The failure is the sort that gives shameless political pandering a bad name. Politicians can gain favor from public employees by accepting contracts that promise generous pensions. They can indulge other constituents by diverting the money designated for pensions. They can appease taxpayers by holding down taxes in the near term.
They can also get re-elected over and over, knowing that future lawmakers and constituents will be the ones to pay the price. Only an informed and alert electorate can prevent this kind of scam—and the complexity and dullness of the subject make such vigilance wildly implausible.
So when it comes to public pensions, elected officials have arrived at a formula that suits them well: Never do today what you can do tomorrow. And don't do it then, either.