Americans have watched as public employees in other countries protest and go on strike over shortfalls in pension funds, but we have our own looming crisis in this country. For decades state and local governments have engaged in the same short-sided fiscal management as much of America, assuming that investment returns and tax revenues would continue to go up forever. The result is that taxpayers are on the hook to provide pensions to 80% of the 27 million state and local government workers, but the problem is we don’t have the money. The shortfall is estimated to be as much as $3.4 trillion dollars, more than double this year’s federal deficit. Many states will be unable to pay their pensions by the end of the decade, and half of state pension funds will be broke in less than twenty years.
While the average pension benefit is $22,780 (Center for Retirement Research at Boston College), many public employees receive far more. In California more than 9000 retirees are paid in excess of $100,000 per year. In Yonkers, New York taxpayers were outraged to learn that several police officers who had retired in their 40’s were receiving six figure retirements. A former hospital administrator in New York’s Westchester County receives over $222k annually.
There is no legal way to scale back payments – the deal has already been struck. So our only option is to make changes for new employees. But the problem is that in order to pay these pensions to a population that is living longer, many states and municipalities will have to make deep cuts to programs like libraries, street maintenance, parks, and public safety.
Our current public outcry to lower governmental spending and lower taxes is a wonderful dream – but just not possible unless we are prepared to make draconian cuts in the services we receive. I suspect the pension crisis will be the first among many bills to come due that will require a major public discussion about what and how we fund for the public good.