Thursday, February 20, 2014

Playing Catch Up At The Local Level

(Click on image to enlarge.)

We have been assured by lots of sources that the Great Depression is over.  Wall Street points to the welcome rise in the Dow Jones.  The White House points to the improving job numbers.  Multinational corporations point to increased productivity.  And yet ...

State and local governments aren't quite so sure that the crunch has finally over.  Infrastructure (roads, power grids, sidewalks, sewer and water lines) are deteriorating faster than budgets can cover.  Taxable incomes still haven't returned and sales taxes are still down because consumers still aren't and can't buy as they once did.

On top of all that, state and local governments are facing public employee pension shortages in the years to come if more funds aren't poured into them:

From an AP report in the Pasadena Star News:

California’s government will increase the amount it contributes to state employees’ pensions starting this summer, and cities and other government agencies will follow suit in two years, to help cover the cost of benefits for retirees who are living longer.

The board of the California Public Employees’ Retirement System approved new assumptions for the pension system Tuesday that effectively increase contribution rates.

Projections show workers are expected to live an average of as much as two years longer, driving up the cost of paying benefits to people until they die. Women retiring at age 55 in 2028 are expected to live to 87.

 Contributing more to CalPERS’ $282.5 billion pension fund means local governments will have less money to pay for services such as police, roads and parks. But delaying payments to the pension system would cost more in the long run. ...

Most county and city governments surveyed by associations agreed with CalPERS’ approach to phase in the increase over five years and spread the total cost over 20. But the new rate increases are on top of additional rate increases coming next year.

“Together, they are going to cause serious service reductions,” said Chris McKenzie, executive director of the League of California Cities.  [Emphasis added]

Many short-sighted citizens are screaming about funding public employee pensions on several bases.  In the private sector, employer paid retirements are a benefit of the past.  The very most workers in the private sector can hope for is continued contributions to their 401(k) accounts, however minimal those contributions might be.  Those who don't have even that are scrambling to add to their IRAs and are reduced to hoping that Social Security will be enough to live on.  They find the notion that their tax dollars are going to fund someone else's retirement repugnant.

Understandable? Certainly, but like I said, short-sighted in all sorts of ways.  First of all, most public employees who are either retired at this point or nearing retirement accepted jobs at lower rates of pay than their private sector counterparts because a pension was guaranteed.  Second of all, as more and more private sector employees rejected unions over the past decades, public employee unions such as SEIU swooped into play and negotiated better benefits across the board.  Private sector employees didn't have that bargaining power, but they shouldn't blame their counterparts for that.

Now, however, because of the disastrous ten to twelve years, state and local governments have a lot of catching up to do to meet the obligations.  With any luck and some kept-promises, that catch up will be eased somewhat by increased revenues.  If not, a lot of people are going to think wistfully of that "sandal in Florida."

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