$17 Million a Day

All eyes are on the federal government and the deficit-gone-rogue. “Under current policy, the federal government is spending vastly more than it is collecting in tax revenue. And that will be true for the next several decades, thanks largely to the growth in entitlement spending that will occur automatically as the population ages and health care costs increase. As a result, the ratio of government debt to the nation’s gross domestic product is projected to rise, substantially and without an end in sight.” New York Times, December 29^th. Yep, terrible. But there is another equally debilitating reality facing us at the local level… the headlines aren’t so big, but the damage to our nation really could be.

It’s no secret that too many states and municipalities have commitments to retired and to-be-retired workers that are deeply underfunded. “U.S. states and localities have run up more than $2 trillion of unfunded pension liabilities, Moody's Investors Service said … citing data on plans offered by 8,500 local governments and over 14,000 individual entities. The Wall Street credit agency said that according to its estimate, the total liabilities for fiscal 2010 were more than three times the amount reported by local governments.” Reuters.com, July 2^nd.

Cities like Los Angeles have railed against the level of pension benefits they face, but powerful unions have slammed the brakes on any meaningful changes… even though it is clear that there is no way the city can meet its pension burdens. Police and firefighters in the City of the Angels can retire at age 50 with 20 years of service!

At a state level, however, California passed sweeping government pension reform legislation, raising the retirement age for new employees, capping the maximum benefits and requiring more contributions from the workers themselves. It is a trend that is generally finding traction across the United States, but we are miles and miles away from a sustainable solution. Municipal bankruptcy has been rising of late (Alabama, Michigan, California and Pennsylvania all have cities in bankruptcy), and we can expect a lot more.

There are holdouts, however, where denial and procrastination rule… where powerful public employee unions wield sufficient clout to hinder such necessary reforms. Nowhere is that more evident than in Illinois, which adds $17 million a day to its unfunded pension total of roughly $100 billion. The Illinois legislature intends to address this catastrophe in early 2013, but the state’s track record on public pensions is less-than-stellar. The failure to deal with these issues has created a nearly impossible, lose-lose scenario that will require politicians of every persuasion to renege on some of their most basic promises… or risk bankrupting the entire state.

“Critics blame Illinois’ situation on procrastination, budgetary ‘gimmicks’ and frequent raids on state-employee retirement funds to pay for other state expenses. Others blame an unwillingness to take on the unions, which help keep Democrats in power in President Barack Obama's home state. But it's a problem decades in the making, through nearly a dozen Republican and Democratic governors and through legislatures controlled by both parties, dating back to before Illinois changed its constitution in 1970 to prohibit reductions in state employee retirement plans…  ‘Nothing has changed in 40 years,’ said Elaine Nekritz, a suburban Chicago Democrat and chairman of the House Pensions Committee, who called for an end to ‘excuses’ when rolling out another proposal to solve the problem this month.

“Getting a deal done will most likely require lawmakers to do things practically unheard of; Democrats would have to anger loyal union supporters, while Republicans would have to support a plan they think will lead to a tax hike. But without a fix, the payment the state has to make to its pension fund each year will continue to grow, leaving less money for things like education and health care that already have seen big cuts. By 2016, Illinois would be spending more on pension payments than on schools, the governor's office estimates.” New York Times, December 30^th.

But Governor Pat Quinn has a pragmatic solution: “[He] is seeking to use the practical advantages of a lame-duck legislative calendar to fix the state’s pension systems — the most underfinanced in the nation — in a matter of days.” NY Times, Jan. 1^st. In dealing with his “rendezvous with reality,”  noted: “‘We’re trying to do fundamental pension reform that has confounded 12 governors, 13 speakers of the House and 13 Senate presidents over the last 70 years,’ … adding that despite that troubled history, he believed that a meaningful overhaul of the state’s pension systems could be passed through the current legislature in a single week — after lawmakers begin returning to Springfield on January 3^rd and wrapping up before newly elected lawmakers are sworn in at noon on Jan. 9.” NY Times. Think he’ll make it?  

All across our political spectrum are problems resulting from votes for short term popular issues with little or no thought to longer-term consequences. Whether it involves “righteous wars” that get declared all-too-quickly but sap our national strength as these ill-conceived efforts drag on for years and years without any positive results…. or promising powerful unions unsustainable benefits just to get their political machines to turn out the votes. “If there are future problems with this legislation, I will be long gone.” With the exception of the almost never-invoked and excessively cumbersome structure for amending our Constitution, there is a rather dramatic absence of any mechanism that rewards politicians for long-term thinking. With the quality of our educational system sinking faster than the Titanic, it is equally unlikely that voters will alter their “only what I see in the immediate future” mentality in electing their representatives. Every short-term vote, however, is a vote to put an end-date on that magnificent nation we call the United States of America

I’m Peter Dekom, and there is very little sympathy from the rest of the world for the harm we have repeatedly inflicted on ourselves.