Health care and pension benefits for state and local government employees are out of control, experts are telling WND, and a new study by a think tank points to New York City as being emblematic of the fiscal crisis.
Taxpayers in the Big Apple are forced to pay $144,000 a year for salary, health and pension benefits for garbage workers, who are unskilled but unionized laborers.
Research by the Manhattan Institute, a think tank in New York, shows that when Mayor Michael Bloomberg took office after 9/11 the city increased spending on garbage workers’ salaries by three and a half times the rate of inflation every year, growing the sanitation department budget from $1.3 billion a year to $2.2 billion.
The budget increased despite the reduction in force of the overall garbage collection staff by 4 percent; and the same kind of disturbing fiscal trend is slowly being disclosed by other cities and states, experts tell WND.
Dramatic cuts in overall compensation are required for states and municipalities to simply survive, they conclude.
“Reducing state and local government costs requires them to shift to retirement plans that are affordable, predictable and fair to both employees and to taxpayers,” said David C. John, a senior research fellow at the Heritage Foundation, a think tank in Washington, D.C. “Current employees will object, but officeholders have a responsibility to the taxpayers to stand up to that pressure.”
Other experts agree but note that part of the problem is inept financial planning by the government, not just excessive spending.
State governments in the U.S. have an aggregate of pension liabilities exceeding $3 trillion. Politicians assumed an 8 percent return on the pension fund investments when they signed contracts with the public employee unions a decade ago.
Stocks – per the S&P 500 – are, however, negative for the last decade and many fixed income investments relied on by government pension funds are generating nowhere near 8 percent.
According to Robert Novy-Marx, a professor at the University of Rochester’s Simon Graduate School of Business, states are either making up for the weak investment returns by contributing more money to the pension plans through increased taxes, or they are going to have to reconfigure the plans to cut benefits.
New York City isn’t the only body politic in deep trouble, as California and Illinois are essentially insolvent, too, Novy-Marx’s research shows.
According to the Manhattan Institute, the costs are soaring, but pensions aren’t the only cost. Health care benefits for these unionized civil servants are extraordinary.
A decade ago, health care benefits for the department cost $150 million; they have since more than doubled to $313 million. Overall, taxpayers in New York City today spend $144,000 yearly for each garbage worker, up from $79,000 a decade ago. What’s more, taxpayers spent about $10.5 million annually to fund sanitation workers’ pensions. This year, it will cost $240 million – a more than 20-fold increase.
But trimming bloated budgets isn’t as simple as it may seem, experts tell WND. The unions are going to insist they have a constitutional right to have their contract fulfilled.
“If local governments try and cut pensions that have vested, on the states’ own initiative, without first going bankrupt, the public employee unions will claim that violates the Contract Clause of the Constitution,” Hans Bader, a senior attorney at the libertarian think tank the Competitive Enterprise Institute, told WND.
The Contract Clause appears in the United States Constitution, Article I, section 10, clause 1, and states:
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
The Contract Clause, thus, prohibits states from enacting any law that retroactively impairs contract rights, such as defined benefit pensions and health care policies. The Contract Clause applies only to state legislation, not court decisions, however. So there is a solution in federal court.
“Local governments that are running out of money and are willing to go bankrupt could probably wipe out the pensions if they really wanted to,” said Bader.
Alternatively, Bader said, the Republican House, which just overturned President Obama’s health-care reform could impose a tax for excessive pensions and benefits on those local and state government workers, and refund the monies to their troubled states and municipalities.
“Liberals like excess profits taxes levied on oil companies,” Bader told WND. “Why not take a page out of their playbook and impose an excess profits tax on public employees?”
Jerome Corsi’s Red Alert earlier reported such unfunded liabilities are forcing many states to hike property taxes.
For example, New Jersey has disclosed that the unfunded pension liability for state government employees grew from $45.8 billion to $53.9 billion in 2009, an increase of 18 percent.
WND previously reported three GOP members of Congress introduced the
Public Employee Pension Transparency Act, which would require states to disclose publicly the true size of their unfunded pension liabilities and also would prohibit any future public pension bailouts by the federal government.
The lawmakers also say the unfunded state pension liabilities may exceed $3 trillion.