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Public pension problems bring together miserable company

April 6, 2010

Misery certainly loves company. And Kentucky is finding company in a whole host of states faced with unfunded liabilities from their public pension systems that are the product of lawmakers eagerly passing generous benefits systems for state employees and but remaining unwilling to fully fund them.

Gov. Arnold Schwarzenegger, right, talks to Interior Secretary Ken Salazar as they tour the NextEra Harper Lake Solar Electric Generating System facility in Hinkely , Calif. last month. (AP Photo/Jae C. Hong)

Kentucky did enact several measures during a special session several years ago to trim back the cost of providing benefits for new employees, but is still saddled with an I.O.U. to current employees based on retirement and health insurance benefits that the state cannot afford.

That’s why it was interesting to read a column in today’s Los Angeles Times by David Crane, a special advisor to California Gov. Arnold Schwarzenegger, bemoaning an unfunded pension debt of $500 billion.

Crane could have replaced “California” with “Kentucky,” and many of his points would still hold true.

From Crane’s column

Why should Californians care? Because this year’s unfunded pension liability is next year’s budget cut to important programs. For a glimpse of California’s budgetary future, look no further than the $5.5 billion diverted this year from higher education, transit, parks and other programs in order to pay just a tiny bit toward current unfunded pension and healthcare promises. That figure is set to triple within 10 years and — absent reform — to continue to grow, crowding out funding for many programs vital to the overwhelming majority of Californians.

How did we get here? The answer is simple: For decades — and without voter consent — state leaders have been issuing billions of dollars of debt in the form of unfunded pension and healthcare promises, then gaming accounting rules in order to understate the size of those promises.

The responsibility for the pickle both states, along with others, now find themselves in falls to the lawmakers, as should the consequences for continuing to put off a serious discussion about reforming the system and trimming its costs.

From Crane –

Because legislators are unwilling to raise issues that might offend that constituency, they have effectively turned the peroration of Abraham Lincoln’s Gettysburg Address on its head: Instead of a government of the people, by the people and for the people, we have become a government of its employees, by its employees and for its employees.

This explains why legislators fight harder to overturn employee furloughs than to reform pensions and elect to pay more in compensation to just 65,000 employees in one single department — corrections — than they spend on a higher education system serving 10 times as many people.

Simply put, the single most important step a legislator can take to protect programs and taxpayers is to embrace pension reform. There is no structural impediment to pension reform, and no initiative has forced legislators to issue all that pension debt. All of the damage has been caused by legislation, most notoriously SB 400 in 1999, which retroactively and prospectively boosted pension promises by billions of dollars without boosting contributions. Likewise, all the remediation can be accomplished by legislation.

Kentucky lawmakers missed another chance to take on pension reform (as well as tax reform) this legislative session under the pretense that the state’s budget should be job one. Now it appears unlikely the General Assembly will even pass a budget before the end of the session on April 15, leaving this state in considerable worse shape than it was when the session started.

But whether you’re a resident of California or Kentucky, pension reform can’t continue to be put on the back burner. It’s possible the top long-term priority for state fiscal policy, and California, Kentucky and a host of other states will continue to struggle to pass a balanced budget until it is addressed.

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2 Comments
  1. Roxi permalink
    April 6, 2010 10:33 am

    Its not just the states, its also the Federal government – that’s really where all our problems started – borrowing from Social Security and Medicare. Its all been unfunded for a LONG LONG TIME.

  2. April 6, 2010 10:49 am

    Good point, Roxi. It always seems easier for lawmakers to promise or increase benefits than it is to pay for them. Unfortunately, it seems that the bills for a lot of these promises are coming due at the same time for government at all levels.

    Owen

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