Everyone knows that the American federal government is going broke. What is not as well-known is that many American cities are going broke even faster. Reason is talking about the extreme case of Harrisburg, PA (h/t Classical Values), whose dictatorial mayor squandered funds buying hotels and sports teams. But many more cities are getting swamped in pension obligations to their retiring public employees. They promised generous benefits that they now can’t afford to pay, but in many cases they aren’t allowed to cut back on those contracts, so other parts of city budgets must suffer.
The St. Louis Post-Dispatch has been doing some scathing reporting the last couple of weeks on the extreme pension collection of its city firefighters. Somehow 48% of them are retiring “disabled,” which gives them even more annual benefits than they would get otherwise, all tax-free with automatic annual raises. But many of them are conveniently working other jobs or living out very active hobbies while they collect more than $40,000 a year in “disability” pension payments from the city. Hopefully reporting like this will keep St. Louis from following Central Falls, RI, which filed bankruptcy last year after “retirees failed to accept cuts in pensions and benefits.”
At the same time I read about cities going broke from pension problems, I read about people fretting about public libraries closing or getting their funding cut. This creates philosophical debate about whether or not the government should fill the role of providing public libraries and whether or not the private sector would do it better, and so on. But I can’t help thinking that we might not even need to be having these discussions if city pensions weren’t so generous. Libertarian rhetoric aside, I believe public libraries are almost certainly public goods that benefit the community at large. Even if you want to take a hard stance that they aren’t public goods, you have to admit that they’re a whole lot closer than individual pensions. If the government wasn’t spending such a large portion of its budget on a few individuals, it wouldn’t have to cut back on the services that are beneficial to everyone in the community.
A few years ago states were closing rest areas to save money as the recession took hold. Sure, the states had lower tax revenues coming in, but these rest areas were still affordable back in whatever year this was a normal level of revenue. I wonder if there were individual payment obligations that were now crowding out the states’ ability to fund long-running community services like rest areas.
This is happening at the federal level as well, and it’s a large part of the reason our federal government is going broke on a much larger scale. As Social Security, Medicare, and Medicaid take up larger and larger percentages of the budget, they crowd out the “discretionary” spending, which is everything else. “Discretionary spending is projected to fall from 8.7% of GDP in 2011 to 5.0% in 2022.” Our massive defense budget is included in that, so the “non-security discretionary spending” is even smaller. That’s everything else the giant federal bureaucracy does, from transportation to education to energy. Federal departments are under attack for freezes and cuts thanks to the political inability to reform the big 3. (We’re finally seeing a tiny political ability to reform defense. But it should basically still be in there as the big 4.)
Now I know that most of these departments are the source of all libertarian misery. Federal raids on guitar factories. Job-killing EPA regulations. The TSA. FEMA. The costly and ineffective drug war. Besides, the government bureaucracy is so full of bloat that any cutbacks on their budgets should be a libertarian dream, right? Well, what if the federal drug war keeps running full-steam but we see cuts come to NASA? I believe NASA has been an extremely valuable program for our country. What if we get cuts to National Parks or the National Weather Service? What if we see Republicans attacked for hating research and innovation because that’s the part of the federal budget they’re slicing because nobody wants to touch the big popular payment programs that are much less valuable to the overall country?
I think we need to start differentiating between government expenditures that give funds to individuals and those that provide services to the general community – even if you believe it all needs to be drastically cut. In the one-dimensional world, politicians can rail against “government spending” and completely ignore the payment programs while squeezing public goods that have been running successfully for decades. That’s not responsible government; it’s backward government.
There’s an important difference between the big three entitlements and pension spending. Government-as-employer is allowed to do things that government-in-general is not. Even if I don’t like public pensions from a libertarian standpoint, employer-provided pensions were standard even in the private sector four or five decades ago. The people who are retiring now were beginning their careers back when pensions were the norm. That doesn’t mean we should be giving pensions to new hires anymore, but it does make it more difficult to cut back on those already receiving pensions. (Although the St. Louis firefighter situation just sounds like outright fraud.)
Good point about the employer difference. Still I think the outcome is largely the same, especially with Social Security: For decades, government promised retirement benefits to people and now sees that it’s not going to have the funds to pay those benefits as promised. Sure private pensions used to be more standard, but my understanding is that public pensions were often far more generous, often allowing employees to retire 10 or even 20 years earlier and receive 75% or more of their salary forever. I understand that it’s contractually more difficult to change these promises, but that doesn’t matter if the city just doesn’t have the money. At least with SS, everyone is supposed to get it, and everyone can take a cut if we reach the “cliff.” Public pensions only go to a few people, and the community suffers when the city goes bankrupt or cuts standard services to keep up with its generous pension payments.
There’s an important difference between the big three entitlements and pension spending. Government-as-employer is allowed to do things that government-in-general is not. Even if I don’t like public pensions from a libertarian standpoint, employer-provided pensions were standard even in the private sector four or five decades ago. The people who are retiring now were beginning their careers back when pensions were the norm. That doesn’t mean we should be giving pensions to new hires anymore, but it does make it more difficult to cut back on those already receiving pensions. (Although the St. Louis firefighter situation just sounds like outright fraud.)
Good point about the employer difference. Still I think the outcome is largely the same, especially with Social Security: For decades, government promised retirement benefits to people and now sees that it’s not going to have the funds to pay those benefits as promised. Sure private pensions used to be more standard, but my understanding is that public pensions were often far more generous, often allowing employees to retire 10 or even 20 years earlier and receive 75% or more of their salary forever. I understand that it’s contractually more difficult to change these promises, but that doesn’t matter if the city just doesn’t have the money. At least with SS, everyone is supposed to get it, and everyone can take a cut if we reach the “cliff.” Public pensions only go to a few people, and the community suffers when the city goes bankrupt or cuts standard services to keep up with its generous pension payments.