The Great Debate

by Marilou Moursund on October 12, 2010

in Debt,Employment,politics

While politicians continue to try to divide the country over race and social issues, they are ignoring the growing tension between the private and the public sector.  A report to be published today details in stark terms the pension issue facing many states and municipalities.  Big U.S. cities’ and counties’ pensions are underfunded by $574 billion, and state pension plans are potentially underfunded by $3 trillion.

The trade off in government work used to be a lower salary in enchange for job security and safe benefits.  Public salaries including benefits are now at 1.5x that of private workers, and they haven’t experienced the job losses felt by the rest of the country.  From the linked article:

“Local governments use unique accounting methods that many, such as Mr Rauh, believe understate obligations. Based on his estimates, which use US Treasuries as the benchmark, each household already owes an average of $14,165 to current and former municipal public employees in the 50 cities and counties studied.

“Philadelphia has the most immediate cause for concern, as the city can pay existing promises with existing assets only through 2015,” Mr Rauh said, assuming an 8 percent annualized return, the most common benchmark for municipal plans.

In New York City, San Francisco and Boston the total is more than $30,000 a household and, in Chicago, it tops $40,000.

Taxpayers in these areas risk not only local tax increases and service cuts to pay for benefits, but potentially some of the bill for the $3,000 billion unfunded obligations at the state level, the researchers say.

“The fact that there is such a large burden of public employee pensions concentrated in urban metropolitan areas threatens the long-run economic viability of these cities, as residents can potentially move elsewhere to escape the situation,” Mr Rauh said.”

France is currently being crippled by public worker union strikes over proposed changes to the pension system, and I am concerned that we will begin to see these kind of strikes here in the U.S.  The public sector doesn’t seem to realize that their jobs exist because the private sector banded together and agreed to pay for them in the general interest.  The Great Recession has opened up the Great Debate on how we are going to take care of our retiring workers.

Leave a Comment

Previous post:

Next post: