Crunch Time

As Americans try to find ways to deal with high unemployment, foreclosures and government-induced inflation, there is a far more urgent scenario developing at the state and local level. Unfunded liabilities in the form of future pension payments to public sector employees. In California for instance, a Stanford University report estimated "pension debt" at more than $500 billion, this in a state that can't manage a balanced budget due in part to existing debt service obligations.

This follows record losses by pension funds across the country since late 2008 of $477 billion. One expert said this about the pension debt situation: "Truly astounding . . . They don't translate immediately into budgetary stress for states. But what does happen is through the wizardry of actuarial variations, they will drive pension contributions by states and localities up considerably in the coming years."

Meanwhile, state employees in other states are objecting to relatively minor increases in their contributions to their own pension funds. Of course, the real issue at hand is whether collective bargaining by public sector unions serves anyone except the unions and their members. As columnist George Will put it, "Such unions are government organized as an interest group to lobby itself to do what it always wants to do anyway; grow." Public sector employees produce nothing tangible, contribute nothing to GDP, and have nothing resembling competition to balance the scales in their "negotiations" versus the taxpayers. The taxpayers are not even invited to the negotiations.

The result has been predictable. A system that favors public employees to the detriment of those that pay for it; the taxpayers. This from Brian Joseph of the San Diego Union Tribune: "Numerous studies conclude thta California is facing hundreds of billions of dollars in unfunded pension liabilities. Unless something is done to reduce rising costs, California will eventually be buried by its debt to retired state workers." He noted that the Little Hoover Commission also described the system as "unsustainable" which should come as no surprise when on understands that public sector employees are accountable to no one, not even the taxpayers.

It is worth noting that Franklin D. Roosevelt, not known for his anti-labor sentiment, was also against collective bargaining by public sector employees. This is not a partisan issue. It is a math problem. The California Organization of Police and Sheriffs (COPS) contributed tens of millions of dollars to political candidates in California, and they were rewarded in kind. The typical public safety officer in other parts of the country can retire at around age 50 with 50% of his or her final salary. In California, officers can receive 90% at the same age. The California Peace Officers Association (CCPOA) contributed $2.5 million to Gray Davis in 1998 plus an additional $1 million in independent advertising. Davis rewarded them with a 34% pay raise at a time when unemployment was rising and the current debt situation was still incubating. And the pensions of those members has become part of the $500 billion in "pension debt" that California will have to contend with in the future.

Collective bargaining is why it is impossible to fire incompetent public sector employees. It is why these gloomy scenarios have gotten to the point of becoming disasters without scrutiny. It is why no one from the private sector, someone representing taxpayers interests, was ever in attendance when these deals were made in the first place. Yet these people continue to complain about not being treated "fairly" while others in the private sector are dealing with hardships that would be unimaginable to government employees. Lay-offs, unaffordable health care, foreclosures, downsizing, and the like are common to the rest of us, but in Wisconsin the teachers shut down the schools as a show of "support" for collective bargaining. (Thanks for making the point about who is actually served by public sector unions. Apparently it isn't the students.)

The amounts discussed in the various "fiscal crises" plaguing local goverments will seem like chump change in the future as pension obligations loom without sources for funding. This from KPBS in San Diego: "In 2008 the stock market tanked and County Supervisor Dianne Jacob says like pension systems everywhere, San Diego County was hit hard. The fund lost $2 billion; it had a negative 25 percent return. Jacob says the county is still recovering . . . Right now the fund has $1.7 billion in losses waiting to be recognized. And remember there’s also an acknowledged debt of $1.5 billion. So those two numbers plus about $870 million in pension bonds the county also has, add up to about $4 billion in debt the county will have to deal with in years to come."

Not long after this interview, Diane Jacob and the San Diego County Board of Supervisors approved a bonus for County employees that included a payment of $118,000 to a prosecutor for unused sick days. That's right, he was paid a bonus to show up for work. This is my own commentary published previously:

"The Los Angeles Times recently reported that a simple request for salary information by Controller John Chiang resulted in 172 municipalities refusing to comply, contrary to the law and the state constitution. According to the Brown Act which mandates such reporting, 'The people do not yield their sovereignty to the agencies which serve them. The people, in delegating authority, do not give their public servants the right to decide what is good for the people to know and what is not good for them to know.'

"Solution: Next time these morons show up for a board meeting, they will find locked doors. Financial records will be confiscated for independent auditing. A special election will be scheduled immediately and arrest warrants will be issued against those who refused to comply. They are, after all, criminals according to prevailing law. Simple enough? Let us proceed."

(Not long after this post, the County of San Diego hijacked the account using their internal computers to override the Internet connection. This has been an ongoing problem with the County of San Diego, and for lack of another means of doing so, I will once again bring this issue to the attention of Google with the admonition to assist me in resolving the problem of unauthorized access, password theft and redirected log-ins caused by the County of San Diego. Typical hackers do not convert IPs and Internet connectivity at log-ins to internal networks without malice. I think they will agree with that assessment.)

© humble journalist