The editors at Bloomgberg, explaining why public pensions are “everybody’s problem”:
The pension liabilities that helped bankrupt Detroit have cast a harsh light on similar problems in Chicago and other large American cities, adding urgency to the question of who should close the shortfall. This is a challenge that public-sector workers and retirees shouldn’t bear on their own.
almost immediately get off on the wrong foot with this prescription:
First, governments need to stop lying to themselves. Money that’s slated to cover annual pension and health-care fund contributions but is instead siphoned away to cover other costs won’t magically reappear in later budgets. In the future, states and cities should agree only to benefit packages that are based on reasonable rates of return and annual contributions they can actually make — and then make them.
which is itself delusional. Telling governments or politicians to start by not lying is like telling a major league pitcher that the way to improve his game is to cut off his arms. They depend on lying. Promising to put a chicken in every pot is as old as the republic if not as old as The Republic. That’s how politicians are elected to office and stay there.
I don’t disagree entirely with their second prescription:
No matter how gracefully such changes can be accomplished, it won’t be fair to expect workers and retirees to be the only ones to sacrifice. After all, they are not the people who set the unaffordable policies in the first place.
Some jurisdictions will have to help meet their pension obligations by cutting spending elsewhere, finding new revenue or both. Those steps won’t be popular, but this is a shortfall too large to close easily or cheaply.
but that doesn’t seem to be the question right now. At least in Illinois and in Michigan the question is whether public employees should sacrifice at all.
I think that pragmatically states must be involved. Municipalities are not sovereign and without action from their states they won’t be able to escape the obligations they’ve undertaken however foolishly that was done. The real question is how will the “shared sacrifice” be apportioned?
If I were king, the accounting would be, in descending order of responsibility, the elected officials who agreed to the non-deliverable promises in the first place, public employees, the voters and taxpayers of the cities with the problems, the voters and taxpayers of the states containing those cities, and, finally, all of us.
That’s my delusion. Those most accountable will never be held to account.
One of my suggestions for federal government investment as part of the “what stimulus” was for the feds to provide loans to states and local governments to switch to defined contribution plans. Since the contributions of current employees are often the primary source of contributions into the pension plan, current beneficiaries are very dependent on continuing contribution from the current (and in some public sectors, shrinking) labor force.
It sounds like Michigan has been switching to a defined contribution plan, and it sounds like the switch is being funded by increasing the contributions required of current public employees, though this may not be transparent or is subject to debate. Michigan might have more flexibility too in that is seems like the Constitution in Illinois might guarantee pension benefits from the point of being hired, while in Michigan the benefits may only be protected as they accrue.
BTW/ my father-in-law told me at lunch today that what he’s reading (perhaps from the Illinois division of AARP) that its pretty much a foregone conclusion that Illinois will start taxing pensions. That might open up one avenue for adjusting state pensions to avoid hardship.
The first step, sounds like Michigan may be doing it, is to switch all new hires to defined contribution plans. Stop making things worse. I think the retirees will need to take some kind of hit, but they did make a good faith agreement, so I think they cannot be the only ones hurt.
Steve
The first step, sounds like Michigan may be doing it, is to switch all new hires to defined contribution plans.
That is only a proverbial drop in the bucket in reaching a way to address the gap widening in the unfundable promises made to people.
I think the retirees will need to take some kind of hit, but they did make a good faith agreement, so I think they cannot be the only ones hurt.
So, the ones having nothing to do with making these arrangements, many probably being opposed and calling these pension deals foolish and pie-in-the-sky, the tax payers and the like should be the ones to dig into their pockets to make up the difference?
IMO, it was the unions and their people who contrived and projected these guaranteed retirement plans. No one in the private sector, though, has such iron-tight agreements. For instance, many people projected that the interest earned on CDs would pencil into their retirement. However, when interest bottomed out to help the housing market, they had to scramble to make do elsewhere, versus turning to the goverment (and others) for compensation for such disappointing returns on their savings.
If you buy a property, invest in a business, put money into an proposal, there are no guarantees that you will see that money again, let alone a return on the investment. I think the same should be said if a city goes backrupt, which then puts peoples’ pensions in jeopardy. Nothing in life is really fail-safe, which includes anything people expect to receive money back on. Consequently, the unions and their people should work out their fiscal problems by themselves, in “good faith.”
Furthermore, if there was more awareness/scrutiny regarding promises made, including the understanding that mismanagement and distorted monetary expectations and projections had personal consequences — meaning loss — maybe workers would make union leaders more accountable and expendible if they failed to meet the promises promised.
@jan- This did not happen suddenly. The taxpayers were the ones voting in the people making these agreements. Over and over. A lot of these workers didnt belong to unions, which seems to be the real source of your ire.
Steve
I just made a good faith agreement with the lotto. I bought $500K in tickets fair and square. It was for a good cause; education the government told me. I knew the risks. I paid in. And anyway, I was going to win, dammit. They market it that way. Unfortunately, I lost. I know, it was predicted, but to hell with them, I was going to win and get the benefit, dammit. So, steve. Let me inform you what your share of making me whole is………..
Dave
I can’t imagine anyone sane arguing with your hierarchy; but we can all squabble about the apportionment. The problem, as you note, is your delusion. I have taken the stance I have because it is the only way (and I truly believe this) for the primary culprits: the pols and the “lotto seeking voters” to feel the pain else nothing will change. Free beer still sells; sharing the pain is like crack for pols. And I can guarantee none of us “pain sharers” would be a beneficiary of those lucrative pensions. None of us. Not a nickel. I win, you lose. I lose you lose is the mantra.
I wonder if Madigan’s dinner with his cronies at the Firehouse is done yet, and if they have retired for brandy and cigars while laughing at the fools, er, electorate.
It’s actually pretty easy to imagine. The union leaders are plenty sane and they’ve consistently been making the argument that public employees should take no “hit” at all, they were just innocent bystanders who had contracts that should be honored.
That, essentially, is why the states must be involved. Cities can’t escape those contracts other than through negotiation, bankruptcy, or the equivalent and that will require the states’ permissions
Yes Drew. Buying lottery tickets is just liking working 40 years.
Steve