By Will Collette
“Oh my God, our pension system is going bankrupt! Quick, cut everybody’s benefits!” says the herd.
But the real emergency is that, for the first time since the Great Depression, we are on the verge of shredding the one part of the social safety net that had always, until now, been considered untouchable – the income security of the retired elderly.
The first question we must confront if we are to honestly and rationally talk about pensions is whether we are in such dire straits that emergency measures must be taken. According to Tom Sgouros , one of the smartest people in the state on economic matters, the answer is “no.”
Yesterday, he wrote a fascinating piece that tries to explain in the simplest possible terms – terms I could almost understand – that there are two main causes in our state’s and indeed much of our nation’s so-called “pension crisis.”
Much of the crisis has to do with changes in how governments account for "Other Post-Employment Benefits" (OPEB). We now see governments issue gigantic numbers for their “unfunded liability” for pension costs that scare the crap out of people – except when you factor in what period of time this liability covers.
In the case of pension liabilities, these numbers actually span as much as 50 to 70 years and are NOT, as they are often portrayed, something we will be forced to pay as a lump sum in the next couple of years.
In 2008, then Governor Donald Carcieri used the specter of a giant unfunded liability to essentially con the General Assembly into curbing health benefits for future retirees.
The predictable result was that just about every state employee eligible to retire, did retire so they could avoid losing those benefits.
This caused the annual state pension pay-out to jump far beyond actuarial projections. This happened at the same time the stock market took its spectacular crash, causing a further drain on the pension fund.
Largely to score political points with the Right as well as to stick it to the public employee unions, Carcieri decided not to replace the workers who had retired. That drastically cut the amount of money workers would have been paying into the pension fund. Pensions (like all insurance programs) are based on the idea that you pay in to cover the benefits of people who go before you, and you anticipate that those who come behind you will cover you when your time comes.
That process was totally disrupted and we did it to ourselves, largely through the connivance of our former Governor.
Oh, and let’s not forget that even though Carcieri scored his points by not hiring new workers, the work they did still needed to be done. So the state turned instead to contractors and consultants, many of whom cost more – and did less – than the state workers they replaced.
New census data released last week shows that the Will we ever stop to take a breath, to look around, and ask ourselves whether lurching from one “emergency” solution to another is actually making things worse? Of course the economy is in terrible shape and of course we have terrible unemployment and of course all manner of people – except the rich – are hurting and are expecting to hurt more.
But flailing about and flapping our arms about "the crisis, the crisis" is not a substitute for thinking through what we need to do before we destroy those things that are important to us. Running faster and harder isn’t going to get us out of this mess quicker if all we do is slam headlong into brick walls.
