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States Take Action to Combat $1.26 Trillion Shortfall

Posted By Mike Brownfield On April 26, 2011 @ 1:00 pm In Ongoing Priorities | Comments Disabled

States are facing a whopping $1.26 trillion shortfall [1] in funds to pay pension and health-care benefits for public sector employees, according to a new study by the Pew Center on the States [2].

Wisconsin and Ohio, both of which made headlines for working to get pension costs under control, aren’t the only ones taking action. According to The Washington Post [1], “Concern about underfunded pensions has prompted at least 29 states to either reduce pension promises to new employees or require workers to contribute more toward their retirement benefits.”

And in California, where the state is struggling to cope with its $25 billion budget shortfall [3], a new poll shows that public opinion has shifted in favor of cutting benefits from public sector employees, as the LA Times reports [4]:

Seventy percent of respondents said they supported a cap on pensions for current and future public employees. Nearly as many, 68%, approved of raising the amount of money government workers should be required to contribute to their retirement. Increasing the age at which government employees may collect pensions was favored by 52%.

Cities, too, are feeling the burn and are taking previously unthinkable actions to curb costs. In Detroit, where organized labor is king, Mayor Dave Bing (D) is asking city employees to pay an additional 20 percent of their health care premiums and take smaller pensions, all while he eliminates defined-benefit pensions for all new employees. As The Post reports [5], Bing says the changes are necessary:

Even as the city is shrinking, Bing calls the current state of city services unacceptable. And he says they are not going to improve unless he can reduce the city’s personnel costs, which are overwhelming the budget. This year, the city paid $200 million in pension benefits, which Bing said was $25 million more than the city paid for fire department and ambulance services last year.

“The old days, when getting a good city job meant that you put in your 20 years with the expectation that city government could take care of you for the next 40, is no longer a realistic or viable option,” Bing said.

States and local government are getting the message that they’re spending beyond their means, so why can’t the U.S. Congress?

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Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/04/26/states-take-action-to-combat-1-26-trillion-shortfall/

URLs in this post:

[1] $1.26 trillion shortfall: http://www.washingtonpost.com/business/economy/states-face-126-trillion-shortfall-in-funds-to-pay-retiree-benefits/2011/04/25/AFpprVmE_story.html?hpid=z2

[2] new study by the Pew Center on the States: http://www.pewcenteronthestates.org/report_detail.aspx?id=56695

[3] $25 billion budget shortfall: http://www.aolnews.com/2010/11/11/oops-california-budget-deficit-actually-double-what-legislators/

[4] LA Times reports: http://www.latimes.com/news/local/la-me-poll-pensions-20110425,0,2397255.story

[5] The Post reports: http://www.washingtonpost.com/business/economy/motor-city-finds-labor-clout-weakened-amid-spending-cuts-new-legislation/2011/04/18/AFNl8eiE_story.html

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