Government

Deficits push cities to desperation

An article in the New York Times relates the tough times faced by many New York cities trying to cope with budget deficits caused in large measure by employee pension costs and retiree health care costs. Sadly this is not a new story, it is repeated across America and is a reflection of the political mindset at the federal, state and local levels. In the private sector it would be called mismanagement and results in such things as the GM debacle or in companies taking the drastic action of freezing pension plans or dropping retiree health care. In the public sector, it means higher taxes and passing the problems to the next generation.

You simply cannot promise what you can’t afford or can afford but choose, for political expediency, not to fund. This is very basic and very simple and yet we keep tolerating this behavior.

All the while many public employee union leaders deny the problem and seek more and more for a group of workers who already are fairly paid, face virtually no performance standards with consequences, have greater job security than most workers and enjoy far superior benefits.

Will we ever get it?

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2 replies »

  1. Most of these public agencies are still in denial – for example, the article suggests a significant part of the problem was the decline in investment returns in 2008-2009. However, the article does not mention the fact that most states and municipalities are still using assumed rates of return > = 8%.

    Start by being honest and valuing these liabilities on the same basis as required in the private sector under PPA 2006, etc. A discount rate closer to 5 or 6 than 8 or more will add sunshine – always the best disinfectant.

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    • Absolutely right and I know of one situation personally where the entity was advised by the plan actuary the correct assumptions and the advice was ignored.

      Dick

      Richard D Quinn Editor Quinnscommentary.com

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