Sunday, September 19, 2010

Token Gestures

I have been away for a visit to see my father in California. 

California has always been seen as a bell weather for trends. These include trends of all sorts from fashion to music to movies. 

One area that I am interested in is the trend in government management and fiscal accountability. California offered an eye opening experience. The state is in serious trouble and those who are bringing it down have no clue as to what is going on or why it is happening.

California has a disastrous system of public administration. The roads are in serious disrepair. There are problems in the education system at all levels and of course healthcare is a train wreck waiting to happen.

The Governor
I covered the comments of outgoing Arnold Scwarzenegger in my last blog post. Scwarzenegger On His Way Out in California 
 Roughly 80 cents of every government dollar in California goes to employee compensation and benefits. Those costs have been rising fast. 
Spending on California's state employees over the past decade rose at nearly three times the rate our revenues grew, crowding out programs of great importance to our citizens. Neglected priorities include higher education, environmental protection, parks and recreation, and more.
 It is evident the problems that an out of control  public sector has had on the well-being of the state. If I get a chance in a future blog I will highlight some of the other problems I saw. 

A government of the employees, by the employees, and for the employees.
The major problem in California is the looting of government coffers by the people put in charge of running the system. As Schwarzenegger said in his recent editorial. 
Roughly 80 cents of every government dollar in California goes to employee compensation and benefits. Those costs have been rising fast.
The foxes in charge of the hen house in California, and all governments in North America have a vested interest in not making changes to the system. As you have followed this blog the largest malfeasance has occurred in the Defined Benefits plans that politicians and bureaucrats have provided for themselves courtesy of taxpayers everywhere. 

 Feeble Attempts 
There is a need for meaningful changes and real reform to the public sector pension problem that is causing nightmares for taxpayers all over North America.

To respond to the outrage that is being expressed over the pension issue some governments are trying to make reforms. However, these efforts are coming up short and are doing nothing to solve the root of the problem. 

The Wall Street Journal has recently made major analysis of the pension problem and offers continuing insight into the real issues. One article that shows the deception that is occurring in the pension reform issue comes from Seeking Alpha - The Problem With Pensions

A WSJ article today brings another example of the reform efforts that are falling short of the intended goal.  One of the leading crusaders for pension reform is New Jersey Governor Chris Christie. Even his efforts that are seen as the most drastic of all policy makers in government come way short. The Christie Example points out the only real cure for the pension solutions is the abolition of defined benefit pensions.
New Jersey Governor Chris Christie has become the national pacesetter in state fiscal reform, and he's once again lighting up Youtube with his defense of taxpayers against the appetites of government-employee unions. The plan he announced last week to reform public pensions is crucial to saving the Garden State from economic calamity, but it falls short on one crucial part of long-term reform.
New Jersey has officially run up unfunded liabilities of $46 billion in its pension plan and $67 billion in its medical plan, though some estimates put the shortfalls much higher. Absent reform, the Republican Governor says the unfunded pension liabilities alone will explode to more than $180 billion over the next 30 years.
Most notably Mr. Christie's plan includes a rollback of the fraudulent 9% pension increase that triggered recent civil charges brought by the Securities and Exchange Commission. Without the money to pay for enhanced benefits, and unwilling to suggest even higher tax rates, legislators cooked the books in 2001 by pretending that the pension funds had more assets than they actually did, and therefore could cover larger payments. The fraud was repeated in various state bond offerings. Unions like to cast benefit hikes as sacred promises on the part of taxpayers. But in this case they are more accurately viewed as offenses that would draw prison terms if committed by anyone in private business.
But missing from the Christie proposal is the most important reform for the long-term: shifting government workers from pensions to 401(k)-style plans that have become the norm among private workers. This type of structural reform would prevent future politicians from simply repeating the mistakes of the past and returning to padding pensions when taxpayers are paying less attention.
Government pension systems are inherently flawed because the politicians who bestow benefits upon state workers are the same politicians who seek votes and campaign contributions from the unions representing these workers. When it's time to negotiate the benefits, the politicians and unions are often sitting on the same side of the table, facing no one representing the taxpayers.
 Governor Christie has previously promoted the use of 401(k)-style plans for government workers, but Democrats resisted and he apparently concluded the cause is hopeless. But other states have introduced such programs in gradual fashion, say, for new hires, or perhaps offering a hybrid plan of a limited pension combined with a 401(k). By dropping the issue without a fight, Mr. Christie has given away too much even before the unions get to the table.

Bill Tufts 
Fair Pensions For All 

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