In the halls of the state houses and governors’ mansions rages a debate on how to best address the multi-billion dollar budget short falls. California is wrestling with a budget short fall of $26.6 billion, New York $10 billion, Florida $3.7 billion, Illinois $15 billion, and Texas $27 billion. As the austerity debate rages on, permit me to float my own solution. Fiscal restraint thy name is pension reform. The situation is more dire than most think. Even though Forbes magazine rated Utah one of the most fiscally well managed state, Utah still has an unfunded pension obligation shortfall of $7,000 per resident. For all 50 states total, the total estimated unfunded pension liability is $1 trillion to $3 trillion. US municipalities are currently facing a pension funding gap of $574 billion. Watchdog.org called US local and state pension system "criminal" and said. “U.S. pension funds received a poor grade in a recent study examining systems around the world, ranking tenth of 14 nations, behind relatively poor nations such as Singapore, Chile and Brazil.” The rating was based off of capability, sustain ability, and integrity.
Is it any wonder? The Bureau of Labor Statistics found in 2009 state and local public employees amassed $39.83 in salary and benefits per hour. That is 45% higher than private sector employees. This is during a recession in which private employee salary growth has been slowed. After only 5 years of work, California employees can retire at age 50 with a pension of 50% or more of their highest salary locked in for life. After 20 years of work, the state will finance 100% of their retired employees health care cost. For example, the State of California employs a man at the age of 30 and gives him a wage of $100,000 per year. At the age of 50, he retires with a pension of $50,000-a-year or more plus 100% of his healthcare costs paid until the day he passes from this moral coil. When New Jersey Governor Chris Christie (R) took office, he went public to announce that a New Jersey public servant who put in 20 years of service and contribute only $124,000 to his personal pension, may retire at age 45 and attain $3.3 million dollars in retirement benefits and half a million in health benefits. In total, it is $3.8 million in exchange for $124,000 and 20 years of work.
The shear abuse alone of the system is breath taking. A retired New York fire fighter, John C. McLaughlin, has been taking advantage of an $86,000 per year disability pension since 2001. Supposedly, he is asthmatic with decreased lung capacity despite the fact he a triathlete who frequently participates in long distance races. This exploitation goes far behind McLaughlin's case. Currently, 80% of NY retired fire fighters have qualified for disability benefits.
It seems the political winds have shifted against the big public sector unions which so ardently support the existing exorbitant public pension systems. Utah switched over to a successful and cost saving 401K-style plan for its workers. The state contributes 10% to non-safety municipal and state workers and 12% to state workers. It is capped at 10%; however, it is still more generous than most private sector benefits. Discover Financial Services has caped my 401K at 8%.
For the first time in 70 years of polling history, Gallup found that the majority of Americans opposed labor unions in 2009. In April of 2010, Pew uncovered that union favorability had fallen from 58% to 40% in 2010. Rasmussen Reports uncovered that only 19% of Americans were willing to pay higher taxes to prevent public employee layoffs while 69% would not. In another survey, Rasmussen reported 71% of likely voters believe public sector employees receive better pay and benefits than their private sector counterparts. The same study found only 32% of likely voters believe the current public pension system to be sustainable while 56% said unlikely, and 16% said not likely at all. The majority thought public employees should wait until 65 to retire. The National Arts Endowment President, Dennis Van Roekel, (hyperbolically) said. “[O]ur members face the most anti-educator, anti-union, anti-student environment that I have ever experienced.” To be fair, Rasmussen polling of likely Wisconsin voters stated. “39% favor weakening collective bargaining rights and 52% are opposed. At the same time, 44% support a 10% pay cut for all state workers. Thirty-eight percent (38%) are opposed.” This does not mean that reducing and/or reforming public pension is politically unviable. It means taking away collective bargaining is most likely going to have to be outside of the political calculus.
This pension reform wave has spread beyond Main Street the mainstays of the GOP to the political elite and is quickly nearing bi-partisan consensus. Last month in Massachusetts, the Democratically dominated Commonwealth House voted to strip peace officers, teachers, and local public employees of their ability to collectively bargain for healthcare benefits in a 111-to-42 vote. The Speaker of the House Robert DeLeo (D-Suffolk) claimed the bill would save $100 million for localities over the next budget year and help evade layoffs and reduction in services. He also claimed it would help to control increasing healthcare costs. Had I a blind fold I would have assumed Deleo was a rock ribbed Republican. Most surprising was the reaction from Robert J. Haynes, President of the Massachusetts AFL-CIO. He said. “These are the same Democrats that all these labor unions elected. The same Democrats who we contributed to in their campaigns. The same Democrats who tell us over and over again that they’re with us, that they believe in collective bargaining, that they believe in unions… . It’s a done deal for our relationship with the people inside that chamber.’’ To be fair, DeLeo’s bill will be a tough sell for in Massachusetts State Senate.
The list of Liberal Democrats supporting pension reform continues to grow faster. It includes: former Mayor of San Francisco and Speaker of the State Assembly Willie Brown (D), Green Party member and former President of the San Francisco Board of Supervisors Matt Gonzales, Ralph Nader’s former running mate Marcia Fritz, and Mayor of San Jose Chuck Reed (D). While the effort to reform state pension quickly accelerates from states coast to coast, in Washington D.C. the message seems to be collecting dust; however, what often starts in states has the tendency to eventually move to Washington. Let us pray sooner than later.
