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The States Of Our Fiscal Mess: Slaying The Pension Dragon

Blog From
January 5th, 2011

The main focus of concern in our ginormous fiscal mess is the federal debt, which grows by the second. Tick tock. But, a looming crisis makes the nation’s deep red ink look almost black by comparison. The financial fall of some of our fifty states is just around the corner. If the Feds do anything to help that includes giving more money away, its own solvency picture gets a whole lot uglier. So, rather than a bailout, the Feds should simply bail on the troubled states. Sound harsh? It isn’t, because they have a sure fire way to slay their own budgetary dragon without getting burned in the process.

What’s gone awry in the Federated Fifty? The problem is not so much today’s debt as it is tomorrow’s unfunded public liabilities. Or, what some call benefits, including pension, healthcare and other postemployment goodies, owed to retired public employees. These monsters of bounty are whipping up a firestorm of debt that will reduce the countryside to ash-strewn desolation. Nothing that stands in the way will remain untouched.

How bad is it? The Pew Center estimates, as of mid 2008, a $1 trillion shortfall between actual state pension funding and the funding requirements. Things are considerably worse now. The current shortfall exceeds $3 trillion, with California alone behind the eight ball to the tune of $500 billion. In this century, states have simply failed to make the annual contributions to their pension accounts required by their own actuaries. In good times and bad, they’ve shirked their funding responsibilities while dramatically increasing benefits to public employees. The result is an unquenched dragon consuming dollars once budgeted for essential public services. Meanwhile, the taxpayer bucket brigade is a cinder pile thanks to Uncle Sam’s own mismanagement.

State leaders are coming up with predictable ways to throw more water on the dragon’s fire. Like, cutting the number of employees, raising the retirement age, increasing the employee contribution percentage, reducing benefits for new hires, or switching to quasi 401Ks. Pick your fire hose because, one way or another, the pension monster flaming the public fisc has to be neutralized. That means bruising battles with public employee unions in the days ahead. Of course, we could extinguish them, too.

Or we could do something else. Something that’s a lead-pipe cinch because it relies on the same human trait that got us into this mess. Greed is the sword that can slay the unfunded liabilities dragon. Just target capable, and very wealthy, money managers with larcenous hearts and lure them with an offer they can’t refuse. For a suitable bribe, they’ll be allowed to manage substantial portions of the pension portfolios. Let them do their management thing for while because they’re good at it. Then drop the hammer of justice, bludgeoning them with huge fines. Enough to take the pension fund burden off taxpayer shoulders until the next fiscal catastrophe.

Sound fanciful? Take a look at what’s been happening with New York State’s Common Retirement Fund, one of the nation’s largest public pension systems.  There, the pension fund manager cooked up a pay to play scheme and took million dollar bribes from greedy money managers.  A bunch were caught and the amount of the fines exceeded $170 million. Not bad for a day’s work. Of course, in New York, the scheme was the brainchild of crooks and ours would be government run. But, there’s no better pro at working a con than government.

If that seems too messy, we can always try prudence in our public practices. She’s a pretty good dragon slayer herself. And not a bad elected official, either.

See you on the left-side.


 





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