One big rap on state and local governments by anti-tax rebels is that retiree pensions and health benefits are “bloated.”
Taxpayers working in private enterprise shell out for generous government retirement packages that far exceed anything they themselves are entitled to. Private companies have reduced or even eliminated traditional retirement payouts in recent years, while politicians have sweetened benefits for government retirees.
“The public employee unions have pushed the increased retirement benefits,” notes former Republican Assemblyman Keith Richman of Northridge. “The politicians who have agreed to these higher benefits are being elected and reelected by the support of the public employee unions.”
Richman contends that the retirement burden on government is equivalent to the millstone that has weighed down American automakers. “It’s the same problem the Big Three faced in Detroit,” he says. “Their pensions and retiree healthcare cost more than the steel in their automobiles.”
But another Republican -- in fact, President Bush’s California campaign chairman for two elections -- defends public retirement packages.
Wealthy investor Gerald Parsky of Los Angeles, former chairman of the UC Board of Regents who headed up a gubernatorial commission that studied California’s public pension and healthcare liabilities, says: “I learned firsthand at UC that if you want to attract quality people, you’ve got to be able to compensate them fairly.”
And in the public sector, Parsky says, that often means offering comfortable retirements because “governments can’t match the compensation levels of many companies.
“I start with the proposition that we should be encouraging good people to engage in public employment. . . . Public employment is a part of the economic engine that drives the state as well as provides important services to the public.”
But whenever someone argues against raising taxes to help fill a $15-billion state budget deficit, that person invariably points to public employee pensions and benefits.
Pensions and benefits vary widely, of course.
Highly educated teachers who labored for decades in depressing, dilapidated classrooms -- confession: my wife is one -- receive only modest pensions and aren’t entitled to Social Security. Medical insurance varies by school district.
State workers get pensions plus Social Security and generous lifelong health benefits.
Many law enforcement officers and firefighters can retire at age 50 after 30 years on the job and receive 90% of pay for life.
Cop unions are among the most powerful lobbies at the state Capitol or any city hall. The unions endorse politicians ostensibly because they stand up against crime, but really it’s because they’re soft touches for higher pay and pensions.
The arguments will continue to rage. Little will be done in the near future, however, to change government retirements. Rather, there’ll be an effort to at least stash away enough tax money to pay for the future benefits that public employees have been promised. Otherwise, the costs will escalate even more out of control.
Three years ago, you’ll recall, Gov. Arnold Schwarzenegger launched a clumsy attack on public employees’ pensions. He jumped aboard Richman’s ballot initiative that would have abolished traditional pensions for all new state, local government and public school employees and substituted 401(k)-style plans.
The governor was pummeled by unions and soon surrendered. The initiative was stopped far short of the ballot.
But Schwarzenegger vowed to keep fighting. Besides reining in runaway public pensions, he promised, “We will also accomplish the goal with our budget reform, the goal of redistricting and the goal of education reform. We are on course.” His course led him into a mudhole where he got stuck.
Schwarzenegger has backed off trying to pare public retirement packages. Instead, in late 2006, he appointed the bipartisan Parsky commission to analyze just how deep into financial trouble governments have gotten themselves with their retirement promises.
After a year’s study, the panel reported in January that their unfunded obligations totaled a staggering $118 billion for retiree healthcare -- the state alone is on the hook for $48 billion -- and $63.5 billion for pensions.
Ten days ago, Schwarzenegger finally endorsed the commission’s long list of recommendations that sought not only to prudently pay for the benefits, but also to tackle abuses -- especially “spiking” salaries just prior to retirement to surreptitiously boost pensions.
The governor sought to reassure public employees and taxpayers alike by declaring: “Retirement benefits that have been promised to our valued public workforce must be provided -- and in a way that will not negatively impact funding for other state services or pass the burden on to future generations.”
He ordered his finance director, Mike Genest, to find a way to pay down the state’s $48-billion unfunded healthcare obligation over a 30-year period without “raising taxes or dipping into the state’s general fund.”
Lots of luck.
Genest estimates it will cost the state an extra $1.1 billion annually to fully fund retiree healthcare. It’s already kicking in $1.6 billion, plus $4 billion for pensions.
“I don’t think you’ll see us raising taxes, but that’s one option,” Genest says. “We’ll have to make room in the budget -- push something aside. . . . The alternative is to continue to ignore the problem and build up greater liability.
“We’ve already told employees what they can count on and haven’t yet, as a state, started to put aside the money.”
He adds: “Salaries and benefits are what they are. If people don’t like it, elect more Republicans. Whatever. Right now, this is what we have to finance.”
Richman, a physician who’s vice president of a healthcare organization, has given up trying to replace traditional pensions with 401(k)s. He’s now on a more modest crusade, to raise the retirement age for government employees. His goal is a 2010 ballot initiative. That probably won’t fly either for lack of bankrollers.
It will be a major achievement if government merely sets aside enough money to honor what it has promised.