Thursday, December 30th, 2010 at 11:58am

Government Pay and Pension Plans May Go Bust

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Is This Going To Be The Big Issue In 2011?

In the spring of 2007, Citizens for Better Government, L.L.C. predicted the housing and financial meltdown in Lake County and state of Florida, and at the time, a Lake County Commissioner said we were “grandstanding.”  Well, we were right, and she was wrong.

Right now, there is an issue just about as big and nasty as the housing crisis on the horizon, and it could be the big issue of 2011 – government pay and pension plans.  Government employee pay and pension plans are a serious financial problem facing Lake County, its cities, the state of Florida, and the nation.  This matter has been kicked down the road for the last two years because of the Obama/Democrat stimulus plan.

Most Americans can’t figure out why, after two years and a trillion of dollars of Obama stimulus money, the economy is still faltering – it should be booming.  The answer is simple:  The majority of the trillion dollar stimulus money was sent to states to fund state and local government employee salaries and pensions; it was not used to create new industries and jobs.  Obama defined shovel-ready projects as not laying off government employees.  Because state and local politicians didn’t have the courage to make the cuts, like private sector businesses were forced to do over the last two years, the economic boogeyman is at the door.

Here are some facts that can no longer be ignored by state and local politicians:

  1. The Obama free money stimulus plan ended with the November elections.  The people have sent a clear message – no more bailouts, no more spending, and balance the budget.  Washington’s money has ended, and the federal budget will be cut.
  2. The people have seen their wages and benefits slashed, their homes foreclosed on, and their way of life significantly altered.  There is anger brewing among a large segment of working people who see government workers being overpaid and over-benefited.  In today’s economic environment, even teachers are being compensated more than the average worker.
  3. According to a Novy-Marx and Rauch study featured in a Heritage Foundation article, 116 major pensions sponsored by the 50 states have assets of about $1.8 trillion to pay pension promises from $3.6-$5.2 trillion dollars.  America could have as much as $3.4 trillion dollars in unfunded pension mandates.  That’s more than three times the Obama stimulus plan – America does not have the money!
  4. According to the Heritage Foundation, the pension plans of Illinois, California, and New York are teetering on insolvency, and it is estimated that every taxpayer in New York City is on the hook for $39,000 of pension benefits.  California has already asked Washington for an $8 billion dollar bailout of their plan – this could be just the beginning.
  5. The Heritage Foundation pointed out a recent poll by the Florida League of Cities on police and fire benefits, which opened a lot of eyes.  When respondents were told that a fireman could retire after 20 years with 80 percent of their salary, 66 percent were strongly opposed to the policy.  71 percent of the respondents felt that that a policeman’s average retirement pay of $70,000 was too high.  Most had not realized how generous the state of Florida pension plan was to government employees.
  6. Florida Governor Elect Rick Scott has already identified that the state pension plan must be cut a minimal $1 billion dollars if it is to remain viable in the short-term.
  7. Locally, Leesburg City of Manager Jay Evans and the City Commission have locked horns with the local fire union because they have said their pension plans are unsustainable. This was after most other city workers were already removed from city pension plans.  With tax revenues continuing to decline, these trains are still on a collision course.

Here is the real concern: We are broke, and politicians on all levels have made promises on pension plans they cannot keep.  It appears the chickens are coming home to roost, one way or another, in 2011.

It is time for common sense to come into government, and every government employee, past and present, must understand the harsh realities.  Pension plans are dead because they are unsustainable.  The quicker laws and policies are changed to allow government 401(k) programs, the faster this problem will be addressed.  Retirement pay for life in government and business is unsustainable because it adds too much cost for current services or products.  Contributions to individual retirement accounts should be made with options for employee matches, and when an employee leaves so does his or her salary.  The plan calculations for those who are on current government pension plans must be recalculated to reflect actual historic wage rates and not just the wages in the final years of employment.  Pensions must be adjusted to real levels or brought out based on increased retirement ages.

Government salaries must be in line with the people who pay them – Mr. and Mrs. Taxpayer.  This will mean a lot of wage cuts over the next year or so.  The problem with government is they want to cut their employees’ hours to 32 hours per week and reduce services.  Instead, what should happen is their wages should be reduced by 20 percent with regular 40-hour workweeks.  Government employees should be no different than private sector employees.  If all the government can afford to pay an employee is $22,000 per year, then the employee has a choice to make – work or leave.  If tomorrow, Lake County posted every current government job at a 20 percent salary reduction, we guarantee there would be an overrun of applicants.  A 20 percent cut in a government salary is a raise for most working people.

Making Major Cuts in Schools

The defeat of Amendment 8, which would have eased class sizes in Florida, means teachers and school administrators should be prepared to take major wage cuts.  In business there is a rule:  The more you can get on a truck the lower the cost.  We know some people get squeamish when you start talking about teachers and children, but don’t forget – we are broke.  The more kids you get in a classroom, the more you can pay a teacher.

There are students and teachers who can function and thrive in a big classroom setting, and those who can do so should be rewarded.  A teacher who can control and teach 50 kids in one room should be rewarded with higher pay for higher production.  Those teachers and students that require small classroom settings should be paid accordingly.

The only alternative to meeting the classroom size amendment is to hire more teachers at less pay because the money available is being diluted.  Schools could be forced to go to unpopular alternatives like putting 22 kids in a classroom with a teacher’s aide and a virtual teacher who is instructing three classes at a time.  Another fix would be to eliminate the teacher’s free work period- get everyone teaching all day.  Creative things, which will not cost money, must be done to meet the classroom size amendment– there’s not any more Obama money to save teachers’ jobs.

We understand this subject is highly controversial because it affects the sacrosanct positions of firemen, policemen, and teachers; however, there will be no alternative.  What will probably happen is a scenario similar to that which occurred in 2008  – the Lehman Brothers collapse that sparked this Great Recession.  A major pension plan in California, Illinois, or New York will fail forcing a state into insolvency, and then pension plans across the nation will fall like dominoes. A lot of people will get tangled up in the spokes.

The failure of one big pension plan will cause the entire house of cards to fall.  The state and local governments who address the government pay and pension plans now won’t get snowballed in this next economic calamity.  Everyone needs to be mindful – this disaster grows closer everyday.  If a state is forced to go bankrupt because of a pension plan, pensioners will probably be wiped out.  Is this going to be the big issue in 2011?  We think it will be. It is an important issue that should have been addressed two years ago.

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4 Responses to “Government Pay and Pension Plans May Go Bust”

  1. This is a great article and right on the money or lack thereof! It is a sad day in Florida when the incoming Governor believes it is possible the controllers of the Florida SBA may in fact have been lying to us all along and the fund may be much shorter than we have been told! All Florida state employee retiree’s who depend on this fund and the taxpayer’s who have to replace what the bureaucrats steal should be watching these goings on!

  2. Just a short reply to Michael Levine about taking care of our own. In reality if it was possible you are most certainly correct. However, given our current reality it is impossible for most folks to take care of themselves let alone the grandparents and the grandchildren because the reality of healthcare cost is so unreal. Recently my wife had to go to LRMC emergency room. Four hours cost us $7000.00 because we are under the medicare age and due to the lack of an economy we lost our jobs and have no medical insurance. We went in the door telling them the facts. They did not want to hear the facts and in fact would not even listen when we tried to update our mailing address from my wife’s last visit over eight years ago. To this point in life we have always paid our bills on time! Now I don’t know how we can pay this attrocious bill and we tried to tell them so right up front. While unemployment and loss of medical insurance and income is a real problem one of our greatest problems is government employee’s salaries, benefits and even worse than that is the criminal activities committed by our employee’s such as the story you can read at this link. If we do not stop our public officials from stealing our taxpayer funds and giving same to their friends for kickbacks we can not survive! Stop public corruption! Get right in the face of every politician and demand they disclose everything now! The only honest politician is the politician who has 10 taxpayers watching everything they do!

    Check this out:

  3. Thank You Right Side of the Lake for putting this albatross on the table. As you so articulately pointed out, America cannot kick this can down the road any longer. we must achieve fiscal responsibility. Operating any institution, public or private, requires the balancing of revenues and expenses. Pensions are a huge problem in both the public and private sectors, as exemplified by the Auto Industry’s crisis.

    Social Security is the other albatross. I ask you, “Shouldn’t families be required to care for our parents?” Consider the seven generations theory. Each of us is responsible to three generations before us and three generations after us. The deterioration of the family is at the root of the financial crisis. If families took care of their own elderly, government wouldn’t have to. I have more on this subject, as controversial as this simplistic form of responsibility is.

  4. Name Bennett says:

    It is going to be the biggest issue or bust….
    That one hits the nail on the head. An early 1980’s Readers Digest article titled something like The Rise and Fall of these United States predicted that the fall of America would be that the non producers would out weigh the producers. Well I thought they were talking about the unemployed I never thought government would be the biggest employer. Perpetual motion does not work, not mechanically or economically. I wonder when comparing 1960, 1985 and 2010 what the ration of government to private sector jobs looks like.
    Pray for us

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