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Commentary: Pension reform plan comes from small business ranks

By   /   April 27, 2012  /   No Comments

COMMENTARY By FRANK KEEGAN | State Budget Solutions

Hey, young public employees, what are you going to do when your pension checks bounce after you paid in for decades?

That is what will happen in many — maybe all — states and municipalities sooner or later if they do not reform right now. If you want to see the future, just look at Illinois. One citizen there did, and came up with a real reform plan that might work.

Bill Zettler owns a small business that — like all others — must make sure income is more than expenses or it goes under and he and all the employees lose their jobs.

One of the biggest — and getting bigger — challenges he faces is paying taxes. They are expenses that create no new jobs and provide zero benefits to buy equipment, expand markets, develop resources or produce anything for him, employees or customers.

About 10 years ago when a neighbor told him he retired from teaching at 58 with $120,000 a year income, cost-of-living increases and health insurance, Zettler thought that was great and might be good for his employees.

He found out it would quickly bankrupt his company. “I got interested in it and became self-taught” on the complicated issue of retirement benefits. He would have to come up with millions of dollars to provide equivalent benefits to even a handful of employees.

He wondered how the state, counties, cities and towns could afford it. He found out they cannot and began to warn taxpayers and public workers of the inevitable crash.

On April 23 he put forward a pension reform plan, “Taxpayer Costs Must Be Fixed, Not Unlimited,” that gives a detailed outline for stanching the pension hemorrhage in Illinois that other governments should study.

Basically, “it fixes taxpayer pension cost at 15 percent of payroll and all pension cost in excess of that must come out of departmental budgets and employee compensation costs.”

He writes that, “The very best private sector pension system costs about 14 percent of employee payroll …” so the plan still would be better than the best that taxpayers get.

“Currently state pension costs are about 33.3 percent of payroll (including interest on pension bonds) and change every year according to multiple assumptions used by state actuaries. Health care costs are about 20 percent of payroll,” he wrote.

Actually, Zettler is an optimist because the true cost of pensions in the coming decades is more than $200 billion and growing, not including almost $26 billion in pension obligation bonds beyond the annual interest payment he cites.

Add the fact the state so far this year ran up $9 billion in bills it cannot pay despite a 67 percent income tax increase and 46 percent corporate tax hike, and you hit a hard reality that the pension funds must run out of money along with the rest of the state.

Nobody knows what happens then. “Arithmetic always overwhelms wishful thinking,” Zettler said in an April 25 telephone interview.

Illinois’ public retirement debt is self-evidently beyond any capacity to raise taxes and cut services. Failure of the latest tax increases and budget maneuvers to even dent an ever-growing operating deficit is proof of that fact.

State constitutional protections for pension benefits cannot generate any revenue to pay them. Public employees must start asking: What happens when pension fund coffers are empty? Will pensioners have to get in line along with everybody else the state owes money to, including bondholders?

Recent studies by the Government Accountability Office and the Federal Reserve Bank confirm that virtually all finances of municipalities and states are on an unsustainable course, and retirement debt is a huge hidden cause.

Illinois is among the worst of the worst. Everybody — including current retirees — can start sharing the pain now to survive or end up with nothing later.

If political and union leaders are too greedy and shortsighted to even look at one citizen’s survival plan, young public workers should force them to.

Frank Keegan is editor of Statebudgetsolutions.org a project of sunshinereview.org. The State Budget Solutions Project is non-partisan, positive, pro-reform, proactive and anchored in fundamental-systemic solutions. The goal is to successfully engage political journalists/bloggers, state officials and opinion leaders in a new way of thinking about state government and budgets, fundamental reforms, transparency and accountability.

frankkeegan@statebudgetsolutions.org

 

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