Govt. Pension Crisis Gets Worse

John Seiler:

An excellent article in today’s Contra Costa Times by columnist Daniel Borenstein reports that the state’s government pension crisis is even worse than we thought:

IF THERE’S any hope of resolving the California public-employee pension dilemma, it must start with honest discussion of the size of the problem.

Unfortunately, federal rules for private-sector pension accounting do not apply to government retirement systems. So public-employee plans are free to legally cook the books and hide the full size of the mounting debt.

The difference in the rules allows public-pension plans, when setting rates, to overstate how much money they have, understate how much they need and unconscionably spread out debt payments for generations. It’s politically driven accounting.

If public-pension systems were forced to operate under federal accounting rules that apply to private-sector plans, the required annual payments would often more than triple, devastating state and local government budgets. The public backlash would be unbearable for elected officials and the cost would force layoffs of many more workers.

Instead, public-pension systems paper over the problem.

It’s another case of government operating by its own rules, instead of those in the real world that the rest of us must follow. This in the end is the ultimate problem with government: They don’t play by the rules of reality. Then, when things go wrong, they blame the private sector and boost taxes and regulations.

Borenstein continues:

For example, consider the pension plan for the state’s non-safety workers. When the California Public Employees’ Retirement System required the state to contribute $2 billion for the current fiscal year, it was on a 2009 actuarial valuation that showed the pension plan was 81 percent funded.

If CalPERS had been required to follow private-sector accounting rules, the state would have been required to pay more than $7 billion and the accounting would have shown the plan to be roughly only 55 percent funded, according to estimates prepared for me by a private-sector pension consultant.

Hey, what’s a couple of billion here and there? If things get too far out of hand, the taxpayers will just pick up the tab for the error.

Borenstein concludes:

Keep in mind that this is debt for pension benefits that have already been earned. It’s compensation, just like salary, for work that employees have already performed. So, in essence, CalPERS is pushing off to our children and grandchildren the debt for services we already received.

If CalPERS were bound by private-sector pension rules, the shorter amortization period would drive up current pension costs. But CalPERS officials, like those at most public-pension systems, would rather let the next generation solve the problem.

That’s what government keeps doing: kicking the can down the road. At the federal level, they have run up $14 trillion in debt, with another $1.6 trillion piled up this year. Even though the only real excuse for federal debt, a major declared war, hasn’t happened since 66 years ago, when World War II ended in 1945.

At the state level, governor after governor keeps coming into office promising to “cut up the credit cards” of state spending — then spends too much and increases taxes.

Why do we even put up with these spendthrifts, bankrupts and liars? Why don’t we just privatize the whole kit and kaboodle?

May 31, 2011