Unions, Public Employee Pensions, and Willingness to Pay

I actually agree with a lot of what’s in Catherine Fisk and Brian Olney’s article in On Labor, “Public Employee Unions and Pensions”. It’s a pretty good backgrounder on public employees, pensions, and how we got where we are, if one-sided. Here’s the kernel of their point:

Pension shortfalls do not pose an immediate crisis for states under budgetary pressures for the same reason a homeowner need not pay the entire balance of her mortgage together with the month’s bills. Current accounting rules allow states to specify an extended period (typically thirty years) to pay off or “amortize” liabilities. Some studies have estimated that state and local governments can fully fund their pension plans by increasing their annual contributions over the next thirty years. Alternatively or in addition, states can address shortfalls through modest changes to employee contributions or benefits, as most states have already done.

Unfortunately, dealing in generalities as the article does obscures real problems. What I’d like them to explain is where Chicago is going to get the half billion dollars that the state of Illinois requires the city to pay into its pension fund this year? And where it’s going to get the future payments the state has mandated?

For me the bottom line is that total compensation for public employees, regardless of who they are or what they do or what they might earn in the private sector (if there were private sector jobs for them to fill), must be constrained to the ability of the communities they serve to pay. You can pontificate as much as you care to about the history and efficiency but that’s where the wheel hits the road.