Public Pensions – The Quietly Growing Unfunded Mandate

Making Sense, by Michael Reagan

Today, many of our states are facing serious budget shortfalls as a result of a number of factors, including shrinking sales tax revenues. Politicians now face the untenable choice between decreased services and higher tax rates or the imposition of new “fees” — neither approach very appealing to the electorate.

Cartoon by Daryl Cagle - msnbc.com (click to purchase)

One key element of these budget shortfalls that has not gained as much attention, however, comes in the form of government employee pension payouts. Many state pension programs have been hit hard by the previous three-year downturn in the stock market, states withholding their own payments into their respective plans, and a growing number of retirees becoming eligible for retirement benefits.

Some of our nation’s most populous states such as New Jersey, Illinois and even my home state of California are now tackling the serious problem of pension obligations (California alone faces upwards of a $500 billion pension gap).

In California, Republican Gov. Schwarzenegger has proposed increasing the age of non-public safety, government workers who are eligible for retirement benefits from age 55 to 65. Moreover, the state would also then base retirement benefits for pensions on an average of the last three years of service, rather than the old system, which was based exclusively on the last year of service — inviting employees boost their final salary through overtime work and hoarded vacation.

In New Jersey, Republican Gov. Christie is decreasing the state’s generous pension benefits for new hires. And in Illinois the state has reached bi-partisan compromise to create a two-tiered pension system that raises the age of retirement for government employees to 67 and also reduces pension benefits for new hires. Work underway in other states again proves the capability of states to govern through pragmatic, results-based solutions.

But now, there are calls for the federal government to step in and provide funding to help states meet these pension obligations — something that should make every American taxpayer shudder. Instead of following the lead of California, Illinois and New Jersey, Democrats in Washington want to spend more money that they don’t have in order to appease a significant portion of their base — government employees and their unions.

With Democrats in Washington taking control of banks, our auto industry and our health care system, they now are investigating ways to take on another financial obligation we simply cannot afford- – covering unfunded pension programs. As I mentioned a few weeks ago, when tidbits of a Value Added Tax were being floated, our antennas should have been raised. If we take on pension supplementation, I fear a VAT and increased income taxes will be sure to follow.

You may remember at one time military retirees received 100 percent of their pay in retirement; however, the government scaled that back dramatically to save money. The military has no union and those who served our nation with great distinction for 20 years simply had to accept the change. That is what today’s public employees must accept as well.

With public sector employees earning as much as $5 more per hour in benefits than their private sector counterparts, it only seems fair that they and their unions do their part during these turbulent times. We simply cannot afford the alternative.

—–

Mike Reagan, the elder son of the late President Ronald Reagan, is spokesperson for The Reagan PAC (www.thereaganpac.com) and chairman and president of The Reagan Legacy Foundation (www.reaganlegacyfoundation.org). Look for Mike’s books and other information at www.Reagan.com. E-mail comments to Reagan@caglecartoons.com.

©2010 Mike Reagan. If you’re not a paying subscriber to our service, you must contact us to print or Web post this column. Mike’s column is distributed exclusively by: Cagle Cartoons, Inc., newspaper syndicate. For info contact Cari Dawson Bartley. E-mail Cari@cagle.com, (800) 696-7561.