Tomorrow’s Local Government Pension Crisis is Here

Posted September 12th, 2008 at 3.12pm in Entitlements.

When it comes to retirement and pension benefits, federal, state, and local government officials have all been humming the same mantra: never pay for something today if you can put off paying for it until tomorrow. Unfortunately, tomorrow is here.

The federal government is on the hook for $41 trillion in unfunded obligations for Social Security, Medicare, and Medicaid, and state and local governments owe an additional $1.5 trillion to their state employees for health and pension benefits.

The national reality of these promises started hitting home this year when the first of 80 million baby boomers filed for her first Social Security check, but the painful reality of these promises has become even more acute in California with the bankruptcy of the city of Vallejo.

To make matters worse, this problem was caused by more than lack of planning. The main reason pension promises in Vallejo and other cities and states has been so excessive is due to demands from labor unions for retirees to receive Cadillac pension and health plans.

And who’s stuck with the bill racked up by myopic politicians and big labor? The taxpayer, of course. The politicians who made and union bosses who lobbied for the unaffordable pension promises years ago are no longer on the scene to be held accountable because by now they’re retired—probably with very nice pension packages to boot.

Author: Nicola Moore
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5 Comments

September 13, 2008 john moore, Pacific Grove, Ca writes:

The city of Pacific Grove has begun the process to withdraw from Calpers, the admin. of most city & Co. defined benefit pension plans. Calpers does not admin. defined contribution plans. A city council election will occur 11/04/08, and the labor unions are pushing their candidates. Very interesting.

September 17, 2008 Marcia Fritz, Citrus Heights, CA writes:

Last night I presented an agency’s current pension benefit to board members who did not establish the benefit in the first place. Their benefit is 3% for each year of work based on highest annual pay, and the agency picks up the employee’s 8% share which is added to final pay. The agency also pays social security. This means at 60 an employee with 30 years who earns $100,000 will receive 90% of $108,000, or $97,200, which is more than his/her final pay after SSI taxes. At age 66, the employee will receive about $22,000 in social security. I asked the board what they believe the previous board was trying to accomplish with this benefit that shifts most of an employee’s lifetime income to retirement years. No one could answer and most did not realize that their retirees will fare much better than current workers if taxpayers insist on keeping a lid on spending.

September 17, 2008 Jen, Vallejo writes:

The demands from labor unions and an allergy to taxes is what did Vallejo in. It’s more than pensions.

When I moved here from South San Francisco, I was surprised to discover that the sales tax was a full point lower and my property tax 10% lower (1.25% vs 1.12%). Vallejoans consistently vote down new taxes, easy to accomplish with California’s state law. Cities and counties can not levee taxes without 2/3 voter approval.

City leadership was accustomed to taking marching orders (and significant fiscal support) from the Navy ship building yard in town, which closed in the late 90’s. Fiscal issues and impacts were ignored or deferred, or worse, not even quantified (like the now bankrupting union contract). Unions had significant support in Vallejo dating back to the ship building days and like most working class communities, a distaste for taxes. In last year’s election the anti-union incumbent councilwoman raised $25K to the new pro-union candidate’s $75K. Council votes have typically followed contributions, until the unanimous vote for bankruptcy.

Given the voter support of union backed candidates for so many years, favoring the unions paid off politically on many levels. As soon as it was legal, pensions were bumped up retroactively. Vallejo had no checks and balances in its system, even the local paper backed the unions (and still does). The erosion of city services was gradual. The citizens were ignorant of how dire the situation was until bankruptcy was firmly on the table. With the citizens able to vote down taxes, politicians could shower favors without facing tough decisions.

Vallejo’s political structure happens in small towns all over the nation, we are not unique. Voters will be self serving and reject a tax measure or vote against alleged tax raisers on principle. Voters will “safely” ignore government, satisfied to know government wouldn’t hurt their pocketbook in an appreciable way.

Can we really be that ignorant?

September 18, 2008 John, Santa Rosa writes:

Having such lucrative pensions from government jobs has killed the United States Entrepreneurial spirit which is crucial to the survival of our country. People who own small business that create jobs for others do not have the retirement benefits that government provides for their employees. I ask myself why attempt to start a business, which will help the United States economy, if working for the government will provide a lucrative retirement benefit ticket without the risks, struggles, hours and Uncertainties as owning a business?

September 24, 2008 VANCOUVER, WASHINGTON writes:

It’s time to get real.Get out any agency “CAFRA” report. If you need help understanding it go to.
Walter Burien
http://CAFR1.com

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