If You Think Your State is Broke Now, Just Wait Til The Pension Bomb Explodes!

Unless you've been pulling a Rip Van Winkle for the past few years, you know that your state is more busted than Larry Craig in an airport toilet. The only possible exception is the state of Denial, and it closed its borders to new arrivals sometime in late 2008.

One of the main drivers of this sorry state of affairs is the massive disparity between public-sector and private-sector compensation, especially when it comes to benefits such as pensions. Various studies have found anywhere between a 70 percent and a 34 percent differential in total compensation, with public-sector employees getting not just more pay and benefits but near-absolute job security and early retirement. Consider California, where Reason magazine reports,

"A bipartisan bill...passed virtually without debate unleashed the odious "3 percent at 50" retirement plan in 1999. Under this plan, at age 50 many categories of public employees are eligible for 3 percent of their final year's pay multiplied by the number of years they've worked. So if a police officer starts working at age 20, he can retire at 50 with 90 percent of his final salary until he dies, and then his spouse receives that money for the rest of her life. Even during the economic crisis, "3 percent at 50" and the forces behind it have only become more entrenched.

In the midst of California's 2008--09 fiscal meltdown, with the impact of deluxe public pensions making daily headlines, the city of Fullerton nevertheless sought to retroactively increase the defined-benefit retirement plan for its city employees by a jaw-dropping 25 percent. What's more, the Fullerton City Council negotiated the increase in closed session, outside public view."

Unfunded state pension liabilities run in the neighborhood of $1 trillion.

There is a solution to this mess, the same solution that has been adopted by the private sector over the past several decades: switching from defined-benefit retirement plans to 401(k)-style defined-contribution plans. In a state such as Ohio, which is facing a $8 billion budget deficit and where state and local employees earn about 34 percent more in total compensation than their private-sector counterparts, bringing public-sector compensation into line with the private sector would cut the state's deficit by about 28 percent.

The alternative? Well, there isn't really one, other than destroying your state's economy. The politics of cutting public compensation are never easy but they have also never been more critical.

Go to http://reason.com/blog/2010/08/27/if-you-think-your-state-is-bro
for more info and resources.

Video produced by Josh Swain. Approximately 23 seconds.

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[darkwhitedirewolf]

Vote for me, I can fix the washer. After I have a washer committee investigate. While they investigate and do nothing I can get on the news and blame the other political party for the problem. I will some how end up rich, and nothing else will happen, except 100 billion for the committee.

Oh wait I am supposed to be part of a solution, not more of the same.. dang living in the real world sucks at times.

[HolisticPlantHealth]

@shampoovta "earned" and "pension" are two words that just don't fit together in the same sentence.

[koztowz]

I came back to see this video as the original poster of the washing machine video (photonicinduction) has since deleted the vid and closed his account.

[felpaluche]

We have to get what is due to us.

[jsmythib]

What an insanely funny video :) Great job!

[mow1717]

i suggest americans buy guns.if there is no government like the republicans want then the group with the most guns will rule.if anyone thinks people are going to quietly starve to death they are asking for big trouble.buy ammo and wait for the bottom to drop out of the economy.

[StateCitizen]

It is ALL an

A-CON-OF-ME

[SPEEDKILLAR]

WUAHAHAHAHAHAHAHAHA excellent.

[RodCornholio]

State pensions are immoral since a.) the funds are collected by means of taxation by force b.) the individual is no longer providing any service to the state.

[FatherTime89]

Wow that was incredibly cheap. You're better than this reason.

[TheCandaceH]

The PERS in my state is already bankrupting us. They have the best of the best yet they say they are under paid. I don't see how they can continue giving out these benefits and retirement funds when everything goes under. I'd say it closely related to SS. People should not rely on recieving this anymore.

[WAMill3R]

@FJYardley

I think that any currency scheme funded by local governments would probably end up with the money depreciating rapidly, as colonial scrips did before the American Revolution, as early state scrip did after the war, and as the various Confederate state scrips did during the Civil War. The problem isn't a lack of money, it's a lack of stable money (such as a free-market money issuer would have an incentive to provide).