The Problem of Pensions

In his most recent Washington Post column on the fiscal problems presented by public pensions, after noting Illinois as an object lesson, George Will remarks:

The generic problem in the public sector is the moral hazard at the weakly beating heart of what Walter Russell Mead calls the “blue model” of governance — the perverse incentives in the alliance of state and local elected Democrats with public employees’ unions. The former purchase the latter’s support with extravagant promises, the unrealism of which will become apparent years hence, when the promise-makers will have moved on. The latter expect that when the future arrives, the government that made the promises can be compelled by law or political pressure to extract the promised money from the public.

This game, a degradation of democracy, could be disrupted by laws requiring more realistic expectations about returns on pension fund investments, or even by congressional hearings to highlight the problem. But too much of the political class has skin in the game.

Unlike most Illinois cities, Chicago bears the full burden of the public pensions, whether for teachers or other public employees, it has offered over the years. But Chicago can’t solve its problems on its own, not with the barriers the state has placed in its path. The city does not have the power to impose an income tax or city earnings tax, moves which in all likelihood would drive more businesses out of Chicago. The state constitution, supported by Illinois Supreme Court decisions, insists that not only must public pensions be paid they cannot be reduced.

Consequently, Chicago will need help from the state.

1 comment… add one
  • Jan Link

    San Bernadino, CA is another example of public sector pension short term planning strangling resources of a local government. They have been on the verge of bankruptcy for some time, and now are unable to supply monies needed to address long term medical bills of the employees injured and effected by the Christmas terrorist attack. More and more, it seems, the largeness of pensions is globbling up a municipality’s ability to meet needs and services elsewhere.

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