Pensions a policy disaster

JULY 2, 2010


In May, The Economist judged California a “lean” state, where waste is hard to find, based on the single measure of state employees per 10,000 residents. In “Sanity in the offing?” in the current June 26 issue, the prestigious publication turns its attention to California’s state employee pension crisis.

The Economist cites two studies which “estimate California’s unfunded pension liability at about half a trillion dollars, almost seven times its official debt.”

The pension crisis is “a policy disaster dating back to 1999. That was when the Democratic legislature and the then governor, Gray Davis, a Democrat elected with union support, thanked the unions by giving state workers pension increases of between 20 percent and 50 percent. Many highway-patrol officers, for example, were allowed to retire at 50 with 90 percent of their final salary. All told, California now has probably the most generous public-sector benefits in the country.”

The pension plan administrators, says The Economist, “pretended that this generosity would not cost anything.” Warned by advisor David Crane, a Democrat, “his fellow Democrats voted him off the board” of the CalSTRS, the teachers’ pension plan.

The British publication observes that the current budget crisis is “exacerbated by the additional contributions that taxpayers are obliged to make to top up the public-sector pension funds.”

The article further notes that California state treasurer Bill Lockyer, “warned the legislature that public-sector pensions will bankrupt the state” and wondered whether Democrats could fix the problem “because of who elected you.”

“Voters are getting angry,” says The Economist. “Many find it ironic that those Democrats who are wailing loudest over cuts to schools, universities and health care include people who voted for the pensions that are now crowding out those very programs.”

Elections are in the offing and the publication notes that “unions are preparing to spend oodles of money on the race.”

In its May article judging California a “lean” state, where no runaway spending had taken place, The Economist cited The California Budget Project, “a mildly left-leaning think-tank in Sacramento.”

In “Sanity in the offing?” the author invokes the Reason Foundation, an advocate of defined-contribution pension plans, common in the private sector.

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