TICK TOCK. TICK TOCK. A time bomb is ticking away, sneaking up on you on little cat feet. This bomb won’t kill you, but taxpayers will pay a fortune when it explodes.
The bomb is public pension costs. States, cities and counties nationwide have promised huge retirement benefits to employees and police and fire departments. The contractual amounts are so great and the employees so numerous that many governments are hurtling toward a financial maelstrom that could explode taxpayers’ checkbooks.
This crisis may not be as sexy as Internet café gambling, but the pension bomb could paralyze local and state economies, and drive government costs through the stratosphere. The math is very real and very serious.
Florida’s Retirement System, for example, has a $19.2 billion deficit in its plan, which would fund the budgets of 19 other states. Florida’s plan is only 86 percent funded, which, believe it or not, isn’t bad compared to other states. Eighty percent or higher apparently is acceptable on actuarial bright-line tests.
Miami is among the metropolitan cities in danger of defaulting on its pension debt. Pension costs in West Palm Beach have risen from $9 million to over $16 million in the last four years, and the city now faces an $8.4 million shortfall. Tampa and Jacksonville are functionally bankrupt because of their pensions, which are now only about 50 percent funded. Cities in California, Alabama, Rhode Island and Pennsylvania have filed bankruptcy because they can’t afford their pension expenses. One Alabama city stopped sending pension checks to city retirees.
This 2013 legislative session, the Florida House of Representatives, spearheaded by Reps. Jason Brodeur and Matt Caldwell, tried to take major steps to solve this problem. But public unions proved too strong. All the Senate Democrats, siding with their union allies and picking up seven Senate Republicans, killed the House initiative.
The House proposal would have closed Florida’s traditional pension plan to new employees and substituted a 401(k)-type “defined contribution” plan. The House plan would have reduced the risk of unfunded liabilities to taxpayers by moving the risk to new public employees. The private sector had the good financial sense years ago to switch to 401(k) plans from traditional pensions. Governments that use 401(k)-style plans fulfill their retirement obligations with fiscally responsible upfront payments.
Many in the mainstream media even supported the House plan. The Orlando Sentinel editorial board endorsed it, possibly because of its personal experiences when parent company, Tribune, went bankrupt, dealing a terrible blow to employees’ retirement plans.
Polls and surveys show that a significant majority of the public agrees with the need to make government retirement plans sustainable. Taxpayers don’t deserve to be jolted with the news that they will be expected to pay off pension shortfalls caused by incompetence.
The current public pension system in most states is unsustainable going forward. The longer the Florida Legislature delays right-sizing pension obligations, the more devastating the problem will become. Existing government employees must understand that if changes are not made in the Florida Retirement System for new employees, their own future pension benefits will be jeopardized, because pension obligations will outstrip pension assets.
Next session, the Florida Legislature will need to face the music: Governments must stop making commitments and accruing liabilities above reasonable costs. And pension plans must be transparent to draw back the curtain when reporting plan losses. Local taxpayers must be protected from unsustainable, unsound pension funding. Benefits rightly earned should be respected, but lawmakers can’t take the word of public unions about what’s fair. As always, the union solution to the ticking pension bomb is for besieged taxpayers to pony up.
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