Friday, January 11, 2013

Public Choice Theory In Action ... Illinois Public Pension Fiasco

Our earlier post today concerns public choice theory and what drives government officials to make what turn out to be reckless, short sighted and ridiculous decisions about the use of taxpayer money.

As a matter of course, politicians on our behalf frequently agree to spend and not tax today and don't concern themselves at all with the long term ramifications of that spending and not taxing.

And with respect to future commitments to spend, it's even worse. That's treated as free money --- at least to the aristocratic politicians since they'll be out of office down the road and personally unaffected by the certain to come later turmoil surrounding the decisions they make. It's very much the free lunch syndrome at work.

A good friend was prompted to send along to me an editorial written 20 years ago about the then developing pension funding fiasco for public employees in Illinois. It's a great example of how government works.

Who can say We the People haven't been sufficiently warned of the inevitable effects of spending money we don't have over a long period of time? Nobody!

Here's the relevant and timeless editorial that appeared in the Peoria, Illinois newspaper on January 12, 1993:

"With attempts at state pension reform dominating the headlines, here’s what Journal Star editors had to say on the subject 20 years ago in this piece of Jan. 12, 1993:
On this the last day of the 87th General Assembly, the best thing lawmakers can do for Illinois taxpayers is adjourn quickly.
The last issue on the calendar — legislation making it easier for teachers, university employees and state police to retire early — is dangerous to the state’s fiscal health. Illinois just can’t afford the enhanced pensions the teachers and the troopers seek.
Actually, it can’t afford the pension obligations it already has. Debts to state retirees exceed assets held by $13 billion, according to a report issued Monday by State Comptroller Dawn Clark Netsch.
The state fell $300 million short this year in the contributions necessary to keep pensions coming. Until Illinois gets its financial house in order, it cannot afford new, expensive programs.
There are other, localized problems with this early retirement plan. In Peoria School District 150, for example, some 300 teachers and principals — 25 percent of the certified staff — would be eligible for early retirement. If only half were to accept, one of every eight teachers in local classrooms would be new next year.
That much turnover is dangerous. While new teachers will come cheaper, they’ll be inexperienced. There’s something to be said for the judgment that comes with maturity and years in the classroom ...
But we digress. The real reason for our concern is the money.
The retirement plan is intended to save school districts a substantial amount of money — as much as $1.5 million a year in District 150. But much of those savings will be eaten up the first year by the district’s increased contribution to the pension system and lump-sum payouts to retirees.
The state offered the same kind of plan — adding five years of age and five years of service to those just short of retirement — to another group of employees a year ago, and it turned out to be a false economy. The cost of retirement benefits outweighed the cost of keeping them on. The money just comes out of a different state pocket.
You’d think the General Assembly would learn from its mistake — and its empty checkbook. But the indication is the Legislature may not stop at liberalized benefits to teachers and troopers. In the waning hours of the session, the fear is that firefighters, local police officers and other public employees will seek the same sweet pension deal. Who knows where this will stop and how much it will cost?
Lawmakers must realize that pension bills will have to be paid, if not today, then tomorrow or next year. Illinois can’t continue to put off its debts in the hopes the state will stumble across a golden pot at the end of the rainbow.
Alas, the state’s pension crisis snuck up on no one, as the above warning from two decades ago attests. Legislators heeded none of those, recklessly aggravating the situation by mindlessly passing one pension sweetener after another. As a result, the unfunded pension liability has grown from $13 billion in 1993 to $97 billion in 2013, threatening to sink Illinois with few survivors and no rescue coming.
Now is as good a time as any to say, “We told you so.”
Summing Up
Public choice theory is alive and well in Illinois.
And so it goes in the halls of government of the Land of Lincoln.
And it goes the same way in Washington and in many of the 50 individual states as well. Too many cities and school districts, too.
Someday we'll learn the costs of ignoring future costs in order to experience what we consider to be the "free" and entitled pleasures of today.
That day is coming, and it appears to have already arrived in Illinois. 
Thanks. Bob.

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