Pension panel: Have we hit bottom?

By   /   September 24, 2010  /   No Comments

Panelists at Mercatus Center discussion on state pension crisis said either ‘There’s no place to go but up,’ or ‘It’s always darkest before it goes completely black.’

ARLINGTON, Va. – “The good news is, we’ve hit bottom,” Scott Pattison, director of the National Association of State Budget Officers told about 50 people at a Mercatus Center panel discussion on public pensions here Friday.

“There’s no place to go but up.” Though he added, “We’re going to have austere state budgets for many years …,” and “a new normal” when it comes to what state government can do.

Andrew Biggs of the American Enterprise Institute said he’s not so sure we’ve hit bottom yet.

“I always remember that quote from Chairman Mao (Zedong, leader of the Chinese Communist revolution,) that ‘it’s always darkest before it goes completely black.’”

They and two other speakers outlined the inescapable economic reality public pensions face in funding retirement promises to state and municipal workers, calculated at between $1 trillion and $4.4 trillion.

Other panelists were Eileen Norcross, a Mercatus researcher, and Utah State Sen. Dan Liljenquist.

Pattison said even a few years ago pension reform was impossible because “the public employee unions have so much power.”

But “sometimes the politics can switch. Things have changed. Private sector employees say, ‘hey wait a minute, I have to work ‘til I’m 68; I have a 401k; and I’m paying taxes so you can retire at 52? I don’t think so.’”

He said the pension crisis could not have hit at a worse time, during an “economic hangover,” and laughingly advised, “Don’t run for state legislator.”

Biggs said, “We’re in pretty deep trouble. We start looking like Greece. But the U.S. does a lot more of these activities (government services) at the state level.”

The problem is “there is not a single public sector plan above critical” condition. “Basically, they’ve just got everything wrong. It’s very dire.”

Liljenquist said “It’s the greatest time to be a legislator because reality is on our side. This is not a conservative versus liberal issue, this is a reality issue.”

 When “public employees admitted we could not grow out of it,” they agreed to reforms even though “union leaders didn’t like it. The rank and file realized their pensions were at risk. Reality is not negotiable.”

 Norcross presented her study on “A Blueprint for Reform in New Jersey” which she calculated has a true unfunded pension liability of almost $174 billion, about 44 percent of the state’s gross domestic product.

The five pension plans could run out of money to pay benefits by 2013, but Norcross offered a three-step recommendation for trying to turn it around.

When an audience member asked if “We can tax our way out of it?,” Pattison answered, “Simple mathematics proves no.”

All panelists agreed that a federal bailout of irresponsible state and municipal pension plans, even if possible, would make the problem worse in the long run.

“You’re going to see the Balkanization of America over these pensions. No federal bailout for irresponsible states would fly with voters.”

A recent comprehensive study by the Government Accountability Office, GAO-10-899, found state and municipal governments must cut operating expenses 12.3 percent “immediately and each and every year for 50 years” to keep from going broke.

The study concluded “challenges cannot be adequately met by shifting burdens from one level of government to another.”

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