Derailing public pension gravy train

Orange County Register (CA), November 22, 2009
Defenders of government employees’ current retirement system depict critics as haters of government workers who want public “servants” to spend their retirement years eating cat food and living in dire poverty. That’s the response I always get when I point to the absurdity of the current pension system, whereby public employees who qualify can retire as early as age 50 with 90 percent of their final year’s pay guaranteed for them and their spouse until they die. There’s a lot of middle ground between being a member of California’s “$100,000 Pension Club” and eating cat food to survive, but this is the emotionalism I’ve come to expect from public sector union members who resist even the most reasonable, fiscally responsible and modest reforms.

That reaction, by the way, is backed by bare-knuckle political tactics by union leaders against politicians who challenge public-employee pay or benefit levels. Public safety unions are particularly adept at frightening politicians into silence, given the Election Day value of those endorsements from firefighters and police. It’s best for politicians to vote for those pay and benefit hikes – even retroactive boosts that amount to unconscionable gifts of public funds – and let future generations worry about the mounting debt.

Well, the old scare tactics aren’t working so well anymore. The pension system is so corrupt, unfair and unsustainable that most everyone is taking notice, regardless of political affiliation. The California Foundation for Fiscal Responsibility has put forward proposed pension reform initiatives for the November 2010 ballot. Although the unions have pledged to use the “nuclear option” to stop it – i.e., spending tens of millions of dollars on dishonest scare campaigns featuring TV ads claiming that police will die if pensions are brought into reality – the time might be ripe for a citizen revolt against decades of union enrichment.

CFFR’s initiatives simply create a mandatory pension tier for new government employees. It won’t touch the benefits already enjoyed by current workers. The new plan would reduce the formulas, increase the retirement age, cap pensions at 75 percent of the base wage, determine the payout using an average of the final three years’ work rather than the final year and outlaw some of those pension-spiking games (i.e., using bonuses and overtime to gin up the retirement salary). As the Sacramento Bee reported, the initiative would require public employees to make some contribution to health care and – similar to laws in Orange County and San Francisco – would require pension increases to be approved by the electorate.

Why my unusual bout of optimism?

The pension situation has just become so outrageous that it’s impossible to ignore. Girard Miller, columnist for Governing magazine, recently argued how mad and sad he was after a recent “shocking expose by the Los Angeles Times of $53 million of finders’ fees going to a paid hustler with cozy connections to the [CalPERS] board and the former CEO who is now on his payroll.” He complained about the “pay-to-play scandal” at the giant California Public Employees Retirement System and decided that the only solution is endorse CFFR’s pension reform proposals. That’s amazing, especially coming from a columnist at a magazine whose audience is government workers.

This isn’t just some enrichment scandal. It comes on top of steep losses by CalPERS caused by outrageously risky leveraged investments. Why such crazy investments? The system is designed that way. Because of the nature of defined-benefit pensions – the employee is guaranteed a set amount, backed by taxpayers – it is in the interests of retirement systems to embrace risky ventures. If they succeed, the fund and employees benefit. If they don’t, the taxpayer picks up the slack. Notice that CalPERS is looking for the taxpayer to pay billions more to shore up the fund, even as the state faces yet another multibillion-dollar deficit.

This is from a Nov. 15 editorial in the normally liberal Bee: “To pay benefits that rich without unduly burdening state and local government budgets, the pension fund has to earn extraordinarily high returns on its investments. To earn those high returns, CalPERS invested in riskier and riskier ventures.” The editorial pointed to Treasurer Bill Lockyer’s recent words: “It’s impossible for the Legislature to reform the pension system, and if we don’t it will bankrupt the state.”

These are the words of a Democratic politician with strong union ties.

Yes, everyone is noticing that as the cost of retired public employees soars, and their power increases, this leads to the degradation of public services. “California has now reached the paradox of the bureaucratic state,” wrote Rep. Tom McClintock, R-Rocklin, in the foreword to my new book about public employees (“Plunder! How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation”). “Despite record levels of expenditures, it can no longer afford to build a decent road system, educate its children or protect its citizens from criminals.”

As the government spends more and runs up debt, the public gets less. As libertarians, we always warn people who want to expand government that the money gets siphoned off to help the administrators of the programs – it rarely ends up helping the intended beneficiaries. We see this in California, where government employees have become what McClintock correctly calls a “pampered mandarin class.”

As the CalPERS actuary said in a fit of forthrightness: the current pension system is unsustainable. This is obvious. It’s time for reform. Everyone understands this, except for the government workers and their unions.

The big question: Will anyone have the guts to invest the money necessary to get this initiative over the goal line? Unions have a bottomless pit of money they can tap from their members. Will anyone put their money into something that could save the state? We shall see.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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