Dennis Cauchon of USA Today and Stephane Fitch of Forbes recently penned articles on the excessive nature of state and local government employee benefits and the threat taxpayers face as a result.
First, Cauchon reports that "State and local governments have set aside virtually no money to pay $1 trillion or more in medical benefits for retired civil servants...With bills coming due as Baby Boomers start to retire, states, cities, school districts and other governments may be forced to raise taxes, cut benefits or both — a task made especially difficult in an economic downturn."
I would add that the task of cutting benefits for government employees is especially difficult because state and local politicians are generally beholden to the government employee unions. Even those policymakers not predisposed to carry water for the unions are hesitant to ruffle the feathers of a sizable voting block, not to mention a vocal one that still has a lot of regular citizens conned into believing government employees are underpaid, selfless, public "servants." Trust me, I've witnessed this game first hand.
Cauchon also spotlights the big picture problem: "These medical costs are part of a larger burden taxpayers face in providing health care for an aging population. The federal government has a $1.2 trillion unfunded obligation to pay medical costs for retired federal workers and military personnel. Medicare and Social Security push the nation's unfunded promises above $50 trillion." He also notes that the same private sector employees who pay for these benefits via taxes are not so lucky: "Unlike private companies, most governments subsidize health insurance for retired employees."
For more Cato work on unfunded medical benefits for state and local government employees, see here and here.
Second, Fitch reports on the outrageous pension benefits state and local government employees are receiving. This piece should be read in its entirety (warning: don't read it standing up), but I'll list a few tidbits here:
"Goss retired four years ago, at 42, from a $90,000 job as a police commander in Delray Beach, Fla. He immediately began drawing a $65,000 annual pension that is guaranteed for life, is indexed to keep up with inflation and comes with full health benefits...Given that the average man his age will live to 78, Goss is already worth nearly $2 million, based on the present value of his vested retirement benefits. Looked at another way, he is a $2 million liability to Florida taxpayers."
"In private-sector America your job, assuming you still have one, hangs on the fate of the economy. If your employer ever offered a pension for life, like young officer Goss is receiving, odds are it has stopped doing so, or soon will...Four in five public-sector workers have lifetime pensions, versus only one in five in the private sector. The difference shifts huge risks from government to private-sector workers."
"In public-sector America things just get better and better. The common presumption is that public servants forgo high wages in exchange for safe jobs and benefits. The reality is they get all three. State and local government workers get paid an average of $25.30 an hour, which is 33% higher than the private sector's $19, according to Bureau of Labor Statistics data. Throw in pensions and other benefits and the gap widens to 42%."
"The recent market meltdown erased $1 trillion from municipal pension funds, Boston College's Center for Retirement Research figures. That has left the average public plan 35% underfunded. With benefits inexorably rising, the shortfall will balloon to 41% by 2013 if stocks and bonds stay at current levels, representing an unfunded liability of roughly $1.7 trillion, according to the Boston College center."
As I blogged back in October, shed no tears for state (or local) government employees. A former California state government employee cited in Fitch's piece agrees with me:
Don't shed too many tears for public employees, says Gary Clift, a 52-year-old Californian who speaks with an insider's authority. Clift spent 26 years working for the state's Department of Corrections & Rehabilitation, retiring in 2006. He's now collecting 78% of the $112,000 salary he earned before stepping down and full health care coverage for life. Clift is thinking about using some of the public's largesse to write a book about the outrageous ways public employees milk California.
Clift holds special vitriol for a state program that lets employees retire and return to work part-time as "consultants." Some of the "retired annuitants," known as retired irritants to full-timers, deliberately get themselves laid off to collect unemployment pay without having to even show up, Clift says.
Near the end of his career Clift spent two years in the Department of Corrections' Sacramento headquarters analyzing legislation. The office's mandate was to provide the governor with insights into how proposed laws would affect the giant prison system. Not surprisingly, Clift says his colleagues took another agenda more to heart: doing their union's bidding and heading off anything that hinted at job cuts or lower salaries. Clift says he was the only manager at his former prison that he is aware of who didn't put in for disability on retiring.
The prevailing attitude, according to Clift: "It's just taxpayers' money, so nobody cares."
That would be the same state of California that just passed tax and debt increases to close a budget gap that was caused by a decade of runaway spending. The next time you read a story bemoaning the plight of "cash-starved" state and local governments and the possibility of tax increases to bail them out, bear these stories in mind.