Hey state, municipal workers: Focus rage on those who lost your money
By Frank Keegan – For every dollar governments forced state and municipal workers to “invest” in pension funds over five years, their leaders lost about $1.50. Taxpayers — who also happen to pay all public wages and salaries and took a big hit on their own retirement plans — must make up a difference of more than $2 trillion now, and trillions more later.
The immediate tab is almost $800 billion actual value lost from peak to the end of Fiscal Year 2010, plus the $1.3 trillion pension managers promised they would earn on investments.
From 2006 to 2010, state and municipal governments forced employees to “contribute” about $180 billion to pension plans. They forced taxpayers to directly contribute about $385 billion more. Leaders promised – and still do – an average 8 percent return forever.
Instead, they lost it all, plus almost another $300 billion.
So when public employees get angry about tough cuts to balance budgets crippled by a 31 percent revenue drop from 2008 to 2009, they should not get angry at taxpayers. Tax revenue dropped only 8.5 percent, about $67 billion.
The big hit was $477 billion in “Insurance Trust Revenue” lost on bad investments, including pension funds.
According to the latest data from the Census, adjusted for sample size and converting calendar to fiscal years, this catastrophe just keeps getting worse.
Meanwhile the people responsible skimmed about $50 billion in cream off the top.
That’s OK according to Dean Baker, co-founder of the Center for Economic and Policy Research, CEPR. His study released this week, The Origins and Severity of the Public Pension Crisis, admits, “Certainly state and local pension funds were not well served by the professional managers who advised them. It might be reasonable to ask why financial experts, who were often highly compensated for their services, failed to see such an obvious threat to the economy and the stock market as the collapse of a housing bubble. However, this is an issue of the failings of the financial industry, not the failings of state and local governments, except insofar as they exercised poor judgment in buying the industry’s services.”
"Might be reasonable to ask?" What would be reasonable is to seize all assets of the people who committed this fiscal atrocity to help make up the loss.
Baker advocates a simple solution: Just raise taxes.
State and local governments would rather go after easier prey and seize taxpayers’ assets.
Just listen to Keith Brainard, research director for The National Association of State Retirement Administrators, NASRA, (the folks who got rich losing our $800 billion in value and $477 billion in revenue,) in Congressional testimony Monday:
“While the impact of the financial crisis on state and local pensions will likely require spending to increase, the most recent studies find that the share of state and local budgets dedicated to pension contributions would likely need to rise to about five percent on average, and to about eight to 10 percent for those with the most seriously underfunded plans.”
By “spending” he means taxes, and his increases will require tax hikes of from 72 percent to 300 percent because state and local governments have no place else to get the money.
None of these tax increases for pensions will provide any services, fix any roads, teach any children, put any police on the street, keep felons behind bars, give well-deserved raises to current workers, feed any hungry, house any homeless or sustain any of the essential functions of state and local governments.
All of these tax increases will be paid by citizens and businesses already savaged by the Great Recession.
And while Baker, Brainard and others try to blame the Great Recession as a fiscal transient that caused temporary state and local government woes, the Government Accountability Office says they are wrong.
According to GAO-10-899, released in July, state and local governments should have started brutal "structural" cuts equivalent to12.3 percent of annual spending even before the recession hit in December 2007 and continued those cuts every year for the next 50 years.
As for the recession, “Countercyclical federal assistance provided by the Recovery Act and other federal programs to address the recent recession will not alleviate the long-term structural fiscal challenges facing state and local governments.”
Long-term fiscal challenges were not structured by the wave of new governors and legislators washed into office on a tsunami of taxpayer rage.
They were structured by the politicians taxpayers just flushed out of office.
Those are the people, along with union bosses and political insiders, who enriched themselves on false promises to state and municipal workers.
If workers want to express their legitimate rage, they should go after the ones who betrayed them, not the ones trying to fix it.
Frank Keegan is a national editor for The Franklin Center for Government and Public Integrity, watchdog.org and statehousenewsonline.com . Any disgusted public employee, journalist, activist organization or citizen watchdog who wants help exposing government waste, fraud and abuse may contact him at: [email protected]