How to fix state pensions without a federal bailout
The November election sent a message of no more bailouts. Yet many states could default on debts in 2012, forcing a crisis. What can be done now?
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Maryland’s state pension commission proposed raising the years of service needed to qualify for retirement benefits from five years to 15 years. The commission also wants to shift some teacher pension costs to municipalities.Skip to next paragraph
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In Virginia, Gov. Bob McDonnell (R) faces a milder budget crisis but is asking state workers to chip in 5 percent of their pay to the state’s pension system. A few states are attacking the power of public unions, especially their influence over campaigns and in collective bargaining.
The sooner other states follow these examples, the better.
Collective bargaining may be necessary for private-sector unions, but they don’t make sense for employees of a monopoly – government – that represents the public. When union interests get on both sides of the negotiation table, taxpayers lose. This happens when politicians elected with heavy union funding are the ones in charge of fixing the benefit shortfalls.
To be fair, unions argue that in times like these, governments ought to find other places to cut, and then raise taxes to account for the rest. The difficulty is that most states are already down to bare bones with discretionary spending, and tax hikes risk scaring away revenue producing businesses. Plus, getting popular support for tax hikes is nearly impossible.
If states with strong unions refuse to make significant reforms, they would almost certainly ask to be bailed out. Letting the biggest states fail would be tough, but in case that does happen, there are better solutions.
If Washington must act, it will need to offer a loan, not a handout, and one with tough conditions enforced by an independent body. Just as the International Monetary Fund rescues a developing nation, so should the federal government use tough love with states.
These loans should have two general requirements: By the end of the loan, states must balance their budgets and have 10-year sustainability. This way, states wouldn’t go broke now but would be forced to make the necessary changes they refused to make before.
Rep. Devin Nunes (R) of California, Rep. Paul Ryan (R) of Wisconsin, and Rep. Darrell Issa (R) of California have also suggested another key reform to get change rolling. Right now, states are not required to publish an accurate accounting of their pension liabilities; these congressmen offer incentives for states to display these figures so voters can actually know what kind of mess their states are in.
Ending the bailout era will take continued vigilance from voters. To prevent states from collapsing, the public needs to pressure representatives to reform pensions and other benefits for state employees.
The best kind of change starts from the people – as Washington found out in the Nov. 2 election.