States and municipalities face trillion-dollars unfunded retirement obligation problem that the U.S. Chamber of Commerce thinks it might be able to help solve.
WASHINGTON, D.C.—Taxpayers owe millions of state and local government employees trillions of dollars for retirement benefits, and a conference sponsored by the U.S. Chamber of Commerce here Friday attempted to define the problem and discuss solutions.
“On the Funding Edge: What Public Benefit Plans Can Learn from Private Employers” explored what states and municipalities can do now to deal with unfunded pensions and retirement health care costs.
The featured speaker was David M. Walker, president and CEO of the Peter G. Peterson Foundation.
Walker said there is “Too much myopia, too much tunnel-vision, too much self-interest.” State fiscal policy is short-sighted and pushes costs to future generations.
Walker said the public pension crisis is a national fiscal challenge similar to Medicare and Social Security. “Medicare is underfunded by $38 trillion; Social Security only by $7 trillion. One is a much easier fix,”
State and local workers face retirement systems that may be short of funds by as much as $3 trillion. “We also need to strengthen Social Security and enhance savings,” he said, to give workers money to fall back on.
He said states cannot count on a federal bailout. “The federal government is broke.”
Walker said the Federal government made up on 2 percent of the economy in the 19th Century, and now makes up more than 25 percent and rising. “It’s headed to 42 percent on autopilot. More and more of the budget is on autopilot, doesn’t matter what Congress does, it will expand on its own.”
He said state and local governments are spending on conspicuous consumption today, putting off costs to ensure no sound economic future. “The only time public debt has ever been above 60 percent of GDP was in World War II, guess what? We’re there again.”
“The United States is below average in a number of things … higher debt per GDP than Spain, Portugal, and about ten years from being where Greece is.”
Asked if state debt would lead to a federal bailout, Walker said “These plans are not insured by the federal government. That would be a terrible precedent.”
His solution was for states to implement statutory controls that address discretionary and mandatory spending. Tax preferences should also be considered in order to stabilize budgets, he said.
Walker said he believes we can reform pension and health systems to make them reasonable, affordable, and sustainable. To do this, he said, it is necessary to reengineer the base of government to promote positive fiscal change. “We can consider an exchange of primary roles, functions and revenue sources as part of a new federalism.”
He also said abuses in the system such as double dipping, when some workers work 20 years, earn a pension, and then start a new job with an additional pension from the same employer, must be reformed. “We need to be exploring ways that these costs and benefit designs can be made more reasonable … not counting overtime, vacation, sick-time at end of pension benefit”
Walker closed with a final thought: “The business community must lead: Let the federal government know ‘we couldn’t run a business this way; you can’t run our cities, counties, and country this way.”
Phil Marrone is a Research Fellow for <a href=" http://www.statebudgetsolutions.org/">Sunshine Review-State Budget Solutions</a>.