You’ve heard (and, in some cases, unfortunately, been persuaded) that "generous" pensions given to public employees has caused great deficits in pensions and state budgets. It’s nonsense. And here are the facts to prove it.
The Center for Economic and Policy Research has a very important study out. It must be given wide distribution and visibility (and, if there are foundation officers or rich people reading this, do us a favor: give CEPR a windfall of money: it’s one of the few organizations talking sense about the economy). The basic conclusion:
Most of the pension shortfall using the current methodology is attributable to the plunge in the stock market in the years 2007-2009.
And…
The size of the projected state and local government shortfalls measured as a share of future gross state products appear manageable.
The first conclusion is critical because it completely counters the notion that blame for pensions shortfalls should be laid at the feet of public workers. Instead, we should lay the blame at the feet of the reckless people in the financial industry on Wall Street who gambled with our economic future.
And the second conclusion is just as important: the shortfall can be addressed without taking a hatchet to state budgets and attacking workers, libraries, roads and other services we need to have a functioning, decent society.
By the way, both those conclusions precisely mirror the nonsense you hear at the federal level: the government’s deficit and debt are a direct result of the financial collapse, not out-of-control spending AND neither the deficit or debt are a crisis that can’t be handled in a very measured way–though neither political party seems to get that. You can read more about this in "It’s Not Raining, We’re Getting Peed On: the Scam of the Deficit Crisis" .
CEPR’s Dean Baker points out that, without the financial collapse, if pensions grew at at a very modest 4.5 percent since 2007, state and local pensions would have had another $857 billion at the end of the 3rd quarter of 2010. Then, Baker says: [more below the fold here]
The economic fallout from the collapse of the housing bubble has also led to budget shortfalls in state and local governments across the country. One result of these shortfalls is that governments reduced payments in pension funds. In the period since the beginning of the recession, annual payments into state and local pension funds have averaged $6.9 billion less than withdrawals. By contrast, in the three years prior to the downturn, payments averaged $18.4 billion more than withdrawals. If state and local governments had continued to contribute to their pensions at the same rate as they had in the prior three years, then the total assets of these funds would be $77 billion higher than was reported at the end of the third quarter of 2010. Adding this to the $857 billion figure above results in an additional $934 billion in pension funds, a figure far higher than most estimates of the size of state and local government shortfalls.[emphasis added]
Now, about those shortfalls, estimated at between $1 trillion and $3.2 trillion. Obviously, if you throw those numbers out to the general public, people get dizzy because, as an abstraction, to paraphrase Everett Dirksen, a trillion dollars here, a trillions dollars there…that’s a lot.
But, Baker’s point here is crucial, and he makes the following from the actual data (and the charts are there for all to see):
In most states the unfunded liabilities are well under 0.2 percent of future income. This implies that increased revenue equal to 20 cents of every $100 of future output would be more than sufficient to eliminate the shortfall. Even in the states with largest shortfalls, the burden appears manageable. In Ohio, the shortfall is equal to 0.47 percent of future output, in Illinois it is 0.37 percent of future output, and in Mississippi and Rhode Island it is equal to 0.36 percent.
So, the upshot is: we’re being lied to. Some of those lies are coming from the lunatic, anti-union fringe who simply see this as a golden opportunity to destroy the labor movement. But, some of the lies are coming from Democrats and others who see political advantage to going after the weakest among us–and do not have the spine to demand that the richest among us pay a fairer share in taxes.
