In city after city where government union bosses acquired monopoly power to negotiate public employee, pay benefits, and work rules several decades ago, looming public pension shortfalls represent a grave fiscal threat.
Whenever they are compelled by an imminent or existing crisis to even talk about pension shortfalls, Big Labor spokesmen routinely adopt one of two strategies. They brush aside the plain facts and insist there isn’t really a problem, or they insist that the only reason there is a problem is because elected officials are irresponsibly refusing to funnel enough taxpayer money into pension funds, and the solution is simply to jack up taxpayer pension contributions.
But as commentator Megan McArdle showed in a recent Bloomberg column (see the link below), in New York City it is simply impossible either to claim there isn’t a huge problem, or to claim that simply increasing pension contributions is a potential solution.
McArdle quoted a New York Times news article about the Big Apple’s ever-worsening public-pension crisis:
Next year alone, the city will set aside for pensions more than $8 billion, or 11 percent of the budget. That is an increase of more than 12 times from the city’s outlay in 2000, when the payments accounted for less than 2 percent of the budget.
But instead of getting smaller, the city’s pension hole just keeps getting bigger, forcing progressively more significant cutbacks in municipal programs and services every year.
Because putting $8 billion, $9 billion or even $10 billion a year into pension funds won’t be enough to enable the funds to keep their promises to employees, assuming returns are in the normal range for retirement plans, politicians have been diverting a higher and higher share of the funds into higher-risk investments. Of course, as McArdle noted, such “complicated investments” come with “higher fees . . . and the possibility of big losses.”
If union bosses were genuinely concerned about ensuring New York City public pensions are there when their members need them, they would insist the city lower the projected annual returns for pension investments from the current, unreasonably high rate of 7%. But union bosses clearly don’t want to do that, probably because they know the city would demand higher pension contributions from employees if that occurred, and employees might well blame union officials for the unpleasant surprise.
Rather than be honest with their members, Big Apple union bosses evidently hope that somehow, some massive new source of revenue for the city will come along and shore up the pension funds without any difficult choices being made. Within a few years, their strategy could have disastrous results for unionized workers. The conclusion of McArdle’s August 5 commentary directed its ire at politicians, but her words are at least equally applicable to union bosses wielding monopoly-bargaining privileges:
Putting it off will ultimately just make the problem worse; the inexorable logic of compounding is just not very forgiving. Over the next few decades, we are going to come face to face with more problems like Detroit’s: pensions that must be paid, legally and morally, but cannot be paid while still offering an acceptable level of government services. Taxpayers’ wallets are not an inexhaustible resource, and cities and states that demand too much will see their citizenry depart for more fiscally responsible climes.
The problem is that at any given time, it always looks better to delay — and the worse a crisis gets, the more attractive a delay looks, because the reckoning is already very painful. New York’s new mayor has so far said little about the city’s pensions, and it’s probably in his best political interest to keep mum. It’s too bad that the interests of future pensioners — and the city’s — are so different.