Pew state pension, retirement crisis update shows $3 trillion sneak-a-tax

By   /   April 26, 2011  /   2 Comments

By FRANK KEEGAN – Look past Page 1 of the latest Pew Center on the States’ update of retirement promise shortfalls, and you will get an idea how huge it really is. Right now citizens are on the hook for at least a $3 trillion sneak-a-tax increase that is getting bigger fast. Leaders must be honest with the people, or we are doomed to eternal debt.

Politicians of both parties, union officials and a handful of pension fund insiders lied about, cheated on — and in some cases outright stole from — public pension funds at a cost of trillions to betrayed taxpayers and public workers.
 
The lowest this tab could be, according to The Widening Gap study released Tuesday — even accepting official optimistic data and assumptions already discredited by simple arithmetic — is $1.26 trillion. That is a 26 percent increase in just one year from The Trillion Dollar Gap study.
 
However, this year for the first time Pew mentions liability estimates based on realistic calculations everybody but government must use.
 
Those estimates put the pension gap at $1.8 trillion to $2.4 trillion, or about 17 percent of total annual U.S. gross domestic product. Add in at least another $604 billion owed for retiree health-care promises, and even spreading the debt over 50 years could bankrupt some states and severely impair the ability of others to carry out their public trust.
 
At least that is what a Government Accountability Office study last year indicates.
 
This is a debt state governments hide off budget books. Yet for pensions, it is a bill states must pay first — according to their constitutions, statutes, legal precedents and case law.
 
For health care, it is a promise that if broken will dump about 20 million workers who counted on it into the morass of our high-cost, low-care medical system.
 
Right now it doesn’t matter whether benefits are extravagant or meager — the American Federation of State, County and Municipal Employees claims the average pension benefit is $19,500 a year, though we must pay it over many more years than private pensions.
 
What matters is how can we stop this fiscal cancer now?
 
It is growing fast, and any reforms states pass will have little if any impact on what we owe. In fact, most reforms require governments to come up with more cash immediately, cash they do not have.
 
Too understand how quickly this is getting out of control just take a look at a study Pew used to first sound the alarm in 2007, well before the Great Recession.
 
In Promises with a Price, Pew warned “… states need to come up with about $731 billion — a conservative figure that does not include all costs for teachers and local government employees.”
 
Tuesday's Widening Gap study also represents a “conservative figure” and does not include all costs, but the amount we owe still increased 72 percent in just three years.
 
More realistic calculations show the debt grew 300-400 percent.
 
Even though The Widening Gap mentions “record investment losses” from the “Great Recession,” the median 19 percent drop in fund market value did not cause such a huge increase in liabilities.
 
What caused it was a dishonest, broken public retirement system that taxpayers and public workers can force leaders to fix only if they know about it.
 
In 2007 Susan Urahn, Pew Center on the States managing director, wrote, “Now we know the magnitude of this bill — and paying it will require an enormous investment of taxpayer dollars. For states that have dug themselves into a deep hole, there are no quick and easy solutions — but there are fiscally responsible steps all states can take. These will require time, attention and, above all, political will.”
 
Government, pension fund and union leaders failed on all counts. They just kept digging us into the abyss.
 
The first step they must take in leading us out is to be honest about how deep it really is.
 
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: frank.keegan@franklincenterhq.org
 
For a comprehensive primer on state and municipal government pensions, check sunshinereview.org .

Click here to LEARN HOW TO STEAL OUR STUFF!

  • Tough Love

    Quoting …”For health care, it is a promise that if broken will dump about 20 million workers who counted on it into the morass of our high-cost, low-care medical system.”

    Oh …. do you mean they’ll join the OTHER (non-Civil Servant) 85% of the population that doesn’t have very rich healthcare benefits … mostly paid-for by TAXPAYERS ?

    GOOD ! Perhaps if THEY TOO see what it’s like, we can TOGETHER force Congress to come up with some REAL solutions … that are fair to EVERYONE.

  • Tough Love

    Quoting …”What matters is how can we stop this fiscal cancer now? It is growing fast, and any reforms states pass will have little if any impact on what we owe. In fact, most reforms require governments to come up with more cash immediately, cash they do not have.”

    The first step in addressing this cancer is to stop digging the hole deeper. This requires that pension accruals for FUTURE service must be reduced to a level no greater than what the typical Private Sector taxpayer gets (as a % of cash pay) from their employers.

    Those versed in pension design and funding know this will require either (a) 50-75% reduction in the rate of accrual (from current levels), or (b) a hard freeze on the DB Plans and replacement with a 401k style DC Plan with a modest employer (i.e., taxpayer) match.

    The latter, (b) above, will indeed reduce cash inflows to the system by ending current employee contributions to the existing DB Plan. But to say this is detrimental is smoke and mirrors, because using current employee contributions to support the benefits of current (and soon to be) retirees only means we’ll later-on have to make it up (with interest) to pay for the retirement of the younger employees.

    It’s WAY past time for our elected representative to end the current system of unsustainable, unaffordable, unfair (to Taxpayers), and grossly excessive pensions and retiree healthcare for CURRENT (yes CURRENT) Civil Servants.

    None of the above addresses the existing unfunded liability associated with accrued benefits for PAST service. To the extent possible, this should be paid, but sacrifices on BOTH sides are needed. Since much of this liability is the result of negotiations” at a “bargaining table” with nobody looking out for taxpayer interests … and undoubtedly resulted in pension/benefit packages MORE GENEROUS than those that would have been approved if taxpayer interests were indeed a consideration, a haircut in accrued pension/benefits or significant additional employee funding seems quite appropriate.

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