Around the country governments are facing a tidal wave of pension obligations that they haven't figured out how to pay for. By some estimates, the states' long-term unfunded pension liabilities add up to more than $4 trillion. There is no way to meet such a staggering financial burden without sacrificing more and more of the basic services — public safety, education, roads and infrastructure — that governments are formed to provide. Already some cities — from Vallejo, Calif., to Detroit, Mich., to Central Falls, R.I. — have been driven into bankruptcy by the unaffordable retirement benefits they have promised public-sector workers. And there has been talk in Congress of crafting a bankruptcy option for states, a proposal that no longer seems as outlandish as it once did.
Everywhere, the writing is on the wall. In San Jose, reports The Washington Post, "the roads are pocked with potholes, the libraries are closed three days a week, and a slew of city recreation centers have been handed over to nonprofit groups." Taxes have been raised, public services cut, and the number of city employees drastically reduced. Yet annual retirement payouts for public-sector workers continue to climb, thanks to lavish pensions that enrich municipal retirees with as much as 90 percent of their former salaries — and court decisions barring pension benefits for public-sector employees from being rolled back.
The result, in San Jose and across the country, is the "startling injustice" of poor and working-class taxpayers forced to make do with less and less so that the gold-plated pensions of public-sector retirees, which already gobble an outsize share of government budgets, can keep devouring more and more.
Dismay at that injustice is increasingly bipartisan, as it becomes clear that liberal priorities will die on the vine without pension reform. San Jose Mayor Chuck Reed, who is pushing a state constitutional amendment that would empower governments or voters to stem out-of-control retirement costs, is a Democrat. So is Chicago's Rahm Emanuel, who says his city is teetering "on the brink of a fiscal cliff because of our pension liabilities." So is New Bedford's former mayor Scott Lang, who was warning back in 2009 that public pensions and health benefits were strangling government's ability to provide basic services. "It's absolute insanity," he told the Boston Globe. "They're unsustainable."
Now a new study from the American Enterprise Institute strengthens the case for public-pension reform — especially for progressives troubled by income inequality and a growing societal wealth gap.
Andrew G. Biggs, a former deputy commissioner of the Social Security Administration, explodes the claim routinely made by government labor unions that public pension benefits are actually quite modest. It's easy to give the impression that average retirement benefits for government workers are unremarkable, he writes, by including payments to elderly beneficiaries who left government long ago, or short-term workers who receive only a minuscule pension for their time in government.
But focus on pension payments made to lifetime government employees retiring now, and it's clear that public-sector workers, even in retirement, tend to be quite well paid indeed.
In the average state, an average career government employee receives combined pension and Social Security income higher than 72 percent of that state's full-time working employees, Biggs calculates. The figure is lower in some states, including Massachusetts (45 percent); in others, such as Pennsylvania (87 percent) or Oregon (90 percent), it's much higher. Bear in mind that these sums don't include health-care benefits, which typically boost retirees' income by thousands of dollars.
And how much is a full-career public employee pension worth in dollars and cents? In the average state, those lifetime retirement benefits — again, not including health coverage — have a present value worth $768,940. In many states, they're worth even more — $848,735 in Massachusetts, for example, and more than $1.3 million in Nevada.
For the average career government employee retiring today, pension benefits will equal 87 percent of their final salary. Those benefits are eating taxpayers alive, as the pension bomb ticks ever louder.