Public Sector Day of Reckoning

Comments Off on Public Sector Day of Reckoning
Public Sector Day of Reckoning

There's a very good reason irresponsible spending is called "irresponsible."  Eventually, there's a "day of reckoning" where something has to be done, and none of the choices is a good one.  The only word for decisions that lead to this kind of situation is "irresponsible."

Despite this looming day of reckoning, many cities and states have continued on with irresponsible spending, and are now facing new budget crises, with no end in sight.  States are already projecting collective budget gaps that exceed $100 billion for the fiscal year that starts in July for most states.

One budget line item that poses a major burden on many cities and states is their pension obligations to state workers, including teachers and law
enforcement personnel.

Public sector employees receive generous pensions.  Workers can retire after 30 or so years, often with 65 percent to 75 percent of their salary.  By contrast, workers in the private sector who are relying on Social Security don't receive full payouts until age 65 and benefits top out at $29,000 per year.  The average public pension can easily double that.  Here are a couple of examples:

  • The Washington Examiner1 noted that 300 sanitation workers in Washington, DC make more than $100,000 annually; they get excellent health care benefits at no cost; and the retirement program is so generous that at least 180 retirees in the program receive $66,000 or more annually from pension checks.
  • In Vancouver, when a firefighter with 35 years on the force retires at 54, he gets 70 percent of his pay.2 That's $64,000 a year.  So by the time others are receiving their first dime from Social Security at age 65, that firefighter would have already received $700,000 from his state pension.

And if these obligations aren't enough of a financial burden, municipalities and states are now facing a double stress:  the investment market collapse of 2008 and a glut of retirements as Baby Boomers move into their 60s.

These burdens have some towns paying nearly 20 percent of their budget to pension funds, and some have to resort to cutting staff, as well as essential public services such as education and health care, to pay the pensions.

What the public needs are current policemen and current firemen, not retired policemen and retired firemen, much less bureaucrats retired on inflated pensions.

Unfortunately, the political temptation to create extravagant pensions is always there because pensions are benefits that can be promised for the future, without raising the money to pay for them...

To continue reading, become a paid subscriber for full access.
Already a Trends Magazine subscriber? Login for full access now.

Subscribe for as low as $195/year

  • Get 12 months of Trends that will impact your business and your life
  • Gain access to the entire Trends Research Library
  • Optional Trends monthly CDs in addition to your On-Line access
  • Receive our exclusive "Trends Investor Forecast 2015" as a free online gift
  • If you do not like what you see, you can cancel anytime and receive a 100% full refund