Tuesday, August 31, 2010

What does the pension debt mean to you?

State governments have promised to pay pensions to their workers, and all that was fine when the economy was good. Now it's not. The size of the pension debt: an estimated $500 billion in California alone, according to a recent Stanford study. The nationwide debt is more than $3 trillion.

It's one of those "far away" incomprehensible problems -- we don't have a personal frame of reference for it -- but it will indeed reach out to bite our hands that feed it.

Steven Greenhut at Cal Watchdog explains:
Because pensions are senior obligations, as California Gov. Arnold Schwarzenegger’s chief pension adviser, David Crane, noted, they must be funded before other programs: “All of the consequences of rising pension costs fall on the budgets for programs such as higher education, health and human services, parks and recreation and environmental protection that are junior in priority and therefore have their funding reduced whenever more money is needed to pay for pension costs. Thus those who should be most concerned about pension costs are families and businesses concerned about California’s colleges and universities, recipients of the state’s health and human services, users of state parks, citizens interested in environmental protection, and current and future state employees concerned about the potential for pay increases.”

Furthermore, the portion of the budget that goes to servicing pensions does not count the harsh effect of public pensions and pay packages on local governments. In the bankrupt city of Vallejo, Calif., approximately 75 percent of the city’s budget went to police and fire, which left little room for anything else. Because the union-dominated City Council would not reduce current pensions even in the face of bankruptcy, the city was left with slashed police and fire budgets – even as police captains earned $300,000 compensation packages. Pension debt is indeed crippling local governments’ ability to provide other services. The Sacramento Bee recently opined that “this year, the city of Roseville will spend as much to fund its pension plan as it does on parks and recreation. San Luis Obispo will spend six times as much on pensions as it does prosecuting criminals.”

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