Hope For Public Pensions

Professor Amy B. Monahan of the University of Minnesota authored a valuable well-documented research paper on the Public Pension crisis that diagnosed the problem amazingly well for an academic before slipping up when it came to the obvious solution – and there is one though someone not in the political trenches might be excused for missing it.

Among the highlights from the paper:

As a New Hampshire politician explained, “it becomes budget desperation when you’re looking to balance the budget.  You need a few million dollars, well, we’ll just adjust some projections, and short-fund the retirement system and take six million dollars, and spend it some place else.  (page 4)

A primary weakness in these constitutional funding requirements is that there is no generally accepted standard for funding a pension on an “actuarially sound” basis, and the constitutional language does not define the funding requirement any further. (page 5)

If states and cities are going to continue offering defined benefit pension plans, creating such funding requirements is critical to ensuring that promised benefits can be paid when due, without shifting economic burdens to future taxpayers. (page 6)

A state’s failure to contribute the ARC shows that the state is not even contributing an amount that it might have manipulated to artificially lower. (page 10)

The short-term and self-interested focus of politicians is not unique to pension funding.  What may be unique, however, is the fact that there is no obvious counter-balance to politicians’ inclination to underfund. (page 12)

All valid points but then comes the flaw:

Workers are able to get politicians to promise higher levels of pension benefits, while politicians get both the benefit of pension promises and the ability to pay for other constituent needs. (page 12)

Without funding discipline, lawmakers will face the undesirable choice between reducing benefits that have been earned by employees or shortchanging taxpayers by allowing pension funding to crowd out desired public services. (page 13)

Maybe it’s different in Minnesota but in my experience of New Jersey, Union County in particular, it is not ‘constituent needs’ or ‘desired public services’ that forgone pension contributions are primarily paying for.

The general public is not benefiting from a $25 million golf clubhouse or a $4 million running track but the Local 102 PAC that contributed to the campaigns of the decision-makers who green light these projects is.  Nobody wants to pay a law firm $2 million in fees annually other than the people who hire them to do their work for them for which their lawyers pool $30,000 in campaign donations each election cycle.  What about facing a choice between making a pension payment and keeping all the David Wildsteins and Paul Singers in jobs and contracts?

Eliminate these bribes and there will be more than enough tax money to pay pension promises.  It is not the insanity of the defined benefit system that has brought us to imminent bankruptcy but the insanity of the campaign finance system.

 

 

5 responses to this post.

  1. Posted by FormerJerseyan on May 20, 2014 at 12:42 pm

    Well, I think if there is a flaw anywhere in what I read above it is here:

    “Eliminate these bribes and there will be MORE THAN ENOUGH tax money to pay pension promises. It is not the insanity of the defined benefit system that has brought us to imminent bankruptcy but the insanity of the campaign finance system.” [emphasis added].

    I think it would be a start, only, but come nowhere NEAR what is actually needed. But why end there. How about programs designed to help (in the exact words of Sheila Oliver) “the most vulnerablest”.

    I submit that in most states, it is the taxpayer who is singularly the most vulnerablest, particularly to the cry for “more, more, more….”

    Reply

  2. Posted by MJ on May 20, 2014 at 2:09 pm

    I think it is both the insanity of continuing with Defined pensions and the campaign corruptionf of politicians that brought us to where were are now.

    Reply

  3. Posted by Tough Love on May 20, 2014 at 3:07 pm

    Quoting … “Eliminate these bribes and there will be more than enough tax money to pay pension promises.”

    John, I understand your frustration with the political deal-making (and skimming via attorney fees, etc.), but given that we’re shorting NJ’s pension Plans by perhaps $6-$8 BILLION annually, you can’t possibly believe that the elimination of such unnecessary costs could free up sufficient tax revenue to fully fund these pension promises using appropriate assumptions (ala what Moody’s now uses) and even more so if the COLAs are reinstated.

    The promised BENEFIT for the future service of CURRENT workers need to be reduced very materially. No “solutions” that don’t include such reductions have ANY chance of success.

    Reply

    • Posted by Tough Love on May 20, 2014 at 3:37 pm

      John, Upon re-reading your post, I may have misunderstood you. If you meant that elimination of the Public Sector Union campaign contributions and election support …. i.e., the Union’s BUYING of our elected officials and thereby the favorable votes that led to the granting of the current grossly excessive pensions …… you may be correct.

      Reply

    • This is the second time “Mr. Bury” has resorted to the use of this particular strawman argument, kind of like the choice Obama makes between “tax cuts for the rich” and whatever his cause de jure is (e.g. aid to students, health care for all, infrastructure, middle class relief, etc). It is a device usually reserved for use on the dimwitted and unthinking, and seems conspicuously out of place on a blog like this. Perhaps a return to the SL blog pages is planned, and he is getting into practice……

      Reply

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