Wednesday, January 14, 2015

Unfunded and Unaffordable Public Sector Pension Promises Require More Taxes or Lower Benefits ... The Magnitude of the Government's Deceit and the Hidden but Very Real Abuse of Future Taxpayers

Government spends more money that it collects from taxpayers. In addition, it makes promises to spend money in the future for which it doesn't provide for in the present. Someday that's unsustainable and that day is approaching rapidly as the nation ages, its work force slows, its unfunded promises grow, its receipts fall short of its outflows and its promised payments come due.

With that in view, President Obama proposes a new federal program to spend more taxpayer money on providing young students free community college education. See post of January 10 'Paying for an Affordable Community College Education ....' And he also wants the government to spend billions more with the intention of improving K-12 education throughout America. See Education Secretary Outlines Central Federal Role in Policy.

But what if more federal government control and additional taxpayer money isn't the answer to our educational woes? What if instead it just serves to make the financial problems of individual taxpayers, our nation, and cities and states worse than they already are? And what if it's really a head fake where the money is used for pension payments instead of using it to attempt to better educate our children?

Does there ever come a point when truth telling and reality is acknowledged, when the federal government is not running the show, and when we admit to ourselves that taxes are too high and educational outcomes are too low?

The Pension Sink Is Gulping Billions in Tax Raises has the tax and spend, and tax and spend, and then tax some more story of public sector governance and where the money really goes:

"California Gov. Jerry Brown sold a $6 billion tax increase to voters in 2012 by promising that nearly half of the money would go to bolster public schools. Critics argued that much of the new revenue would wind up in California’s severely underfunded teacher pension system. They were right.

Last June Mr. Brown signed legislation that will require school districts to increase funding for teachers’ pensions from less than $1 billion this year in school year 2014-15, which started in September, to $3.7 billion by 2021, gobbling up much of the new tax money. . . . California taxpayer advocate Joel Fox recently observed that no matter what local politicians tell voters, when you see tax increases, “think pensions.”

Californians are not alone. Although fiscal experts have warned about the worsening condition of government pension systems for years, many taxpayers felt little impact from the rising debt—until now.

Decades of rising retirement benefits for workers—some of which politicians awarded to employees without setting aside adequate funding—and the 2008 financial meltdown have left American cities and states with somewhere between $1.5 trillion and $4 trillion in retirement debt. . . .

Under growing pressure to erase some of this debt, governments have increased pension contributions to about $100 billion in 2014 from $63 billion in 2007 . . . . But the tab keeps growing, and now it is forcing taxes higher in many places. . . .

In April two-dozen Illinois mayors gathered to urge the state to reform police and fire pensions, which are on average 55% funded. The effort failed, and municipalities subsequently moved to raise taxes and fees. The city of Peoria’s budget illustrates the squeeze. In the early 1990s it spent 18% of the property-tax money it collected on pensions. This year it will devote 57% of its property tax to pension costs. Reluctant to raise the property levy any more, last year the city increased fees and charges to residents by 8%, or $1.2 million, for such items as garbage collection and sewer services.

Taxpayers in Chicago saw the first of what promises to be a blizzard of new taxes. The city’s public-safety retirement plans are only about 35% funded, though pension costs already consume nearly half of Chicago’s property-tax collections. . . . But the city’s pension bill will double next year to more than $1 billion, so a massive property tax hike is still on the table.

Chicago residents also face an enormous state retirement bill. . . . if the Illinois Supreme Court sustains a lower-court decision overturning 2013 pension reforms, Illinois taxpayers will pay $145 billion in higher state taxes over the next three decades.

Burdened by so much debt, taxpayers in some places are unlikely to see relief soon. When California passed its 2012 tax increases, Gov. Brown and legislators promised voters the new rates would expire in 2018. But school pension costs will keep increasing through 2021 and then remain at that elevated level for another 25 years to pay off $74 billion in unfunded teacher liabilities. Public union leaders and sympathetic legislators are already trying to figure out how to convince voters to extend the 2012 tax increases and approve “who knows what else” in new levies, says taxpayer advocate Mr. Fox. It’s a reminder that in some places the long struggle to pay off massive government pension debt is just starting."

Summing Up

When it comes to improving educational opportunities and outcomes, more taxpayer money is touted by our public officials as the answer to our problems, but the truth is that it's never been the answer, and neither is it now.

Kicking the public sector underfunded pension can down the road has become a favorite game of too many public officials and public sector union officials. They've been playing this game of charades for a very long time now.

And an essential part of the game has been keeping hidden from taxpayers the true costs to properly fund the 'negotiated' retirement benefits. By so doing, that enabled public sector employees to receive immediate and substantial 'negotiated' compensation increases and 'future' promised retirement benefits while not confronting taxpayers with what future tax increases would be required to pay the pension bills down the road.

Now more people are reaching retirement age (often early age retirement with full benefits), the 'fat lady' is beginning to sing all across America, and the money to pay these early and large benefits is nowhere to be found.

Thus, the new game is to tax the citizens in the name of improving education.  But that's not what's really going on behind the scenes. The real reason for the tax hikes is that real money is needed to pay the retirees their promised but currently unfunded retirement benefits.

And what will the kids get out of all this under the radar game playing? Well, down the road today's kids will become tomorrow's adults and be forced to pay their teachers' retirement benefits previously agreed upon by government and public sector union officials in the dead of night.

It's sad, but it's true. That's my take.

Thanks. Bob.

No comments:

Post a Comment