f judges decide state and municipal pensioners are first in line for taxpayer money, it could bankrupt the dwindling number of private sector workers who pay for everybody else.

Conventional wisdom holds that these pension benefits are guaranteed forever, but a report this week from the Kansas Policy Institute concludes, "States and, with state authority, municipalities, can unilaterally reduce excess retirement benefits under circumstances now widely prevailing."  

What circumstances? Reckless granting of benefits and gross mismanagement of public pension funds threaten the very existence of many states and municipalities while indenturing a generation of taxpayers.  

Take a look at the numbers.  

Nationally, private employment dropped almost 3 percent in the past decade as governments' grew more than 6 percent, and unfunded pension promises exploded even as pension investments tanked.  

So on average each American private-sector employee right now owes, best-case, about $12,000 - and worst-case as much as $47,000 - to state and local workers for pensions.  

That's on top of all other national, state and local taxes, fees, public debts and unfunded entitlements such as Social Security and health care.  

It is a debt state and local politicians hide off the books so they can use pension plans as secret lines of credit to falsely claim balanced budgets. The Great Recession exposed them: They don't have enough money to pay what they promised.  

Hey, it can happen to anybody, right? Just declare bankruptcy or renegotiate the deal.  

But states cannot declare bankruptcy. Can they renegotiate?   Their big problem is the common belief that governments guarantee these pensions.

The alleged guarantees include U.S. Constitutional protection of property and contracts, some state constitutional amendments specific to public pensions and common law prohibitions against governments breaking promises or altering gratuities.   When it comes to public pensions, details vary widely from state to state and case to case, as outlined by a University of Minnesota study last year.  

One thing we can count on is these legal questions coming up more often in the next decade as the full catastrophic reality of politicians' betrayal of taxpayers and public workers begins to hit state and local government budgets.  

Already employees sued three states for changing cost of living adjustments, but last month judges threw out two of the cases.  

The National Conference of State Legislatures just released its update on actions states are taking to try to delay the pension crash, but there is no way to know how effective they are, which will be challenged in court, how long that will take or who will win.  

The debt, meanwhile, continues to grow. The big question is whether reforms passed or proposed by states will be too little, and whether resolution in the courts will come too late.   According to the most recent tax burden study by Robert Novy-Marx and Joshua Rauh, the average American household owes, minimum, $1,398 in extra taxes a year, every year, until 2040 just to pay off existing state pension debt. That's $41,900.   Money taken from citizens to provide no public services will come right out of their ability to save for their own retirement.  

A 38-year-old today could have more than $163,000 in a 401(k) plan at age 68 by investing that money and getting the 8 percent annual gain pension fund managers claim is a sure thing over the next 30 years.   The average American household - still bleeding from getting sucker punched and mugged by Wall Street, then taxed to bail the muggers out - now gets slammed down more than $200,000 to pay unfunded public pension benefits.  

According to consulting firm McKinsey & Company, the average American couple already faces a savings gap of $250,000 at retirement, so we should just start referring to average American taxpayers as the pre-homeless. The outcome is inevitable.  

So these public pension plans not only cripple states and municipalities now, they bankrupt the future of those who pay all the bills of all governments.  

That is just the pension debt per household, including households that get their income from taxes.  

When you look at how much it is per private-sector worker, the reality is even worse.  

Take a look at Kansas. There during the past decade total government employment is up 5.9 percent and total private employment is down 3.3 percent: More workers taking taxes from fewer workers paying taxes.  

Estimates of the current total state unfunded pension debt range from best-case $8.2 billion to $21.8 billion. Just over a million Kansans work for private companies.  

So each owes anywhere from $8,000 to $21,000 right now on top of everything else the government takes from their pockets. Without reforms, that debt will grow.  

Officials like to use "employer" and "employee" for public pension fund contributions, but the fact is all contributions come from taxpayers. Only earnings on pension investments do not, and those fell so far during the recession they never will be able to regain enough to pay promised benefits even in the unlikely event there never is another market downturn.  

Average workers simply do not have the money to pay this public debt.  

It is a debt that is not going away, and even though full impact may be a decade or more in the future, only immediate radical action can resolve it.  

Most of the reforms now deal only with benefits for future workers.  

As a recent Barclays Capital report warning municipal bond investors about state pension problems said, "Importantly, the unfunded liabilities reported by state and local governments do not reflect future employees. So although a reduction in benefits for future employees will produce savings over the long term, it does not materially address the currently reported unfunded liabilities."  

The crisis is upon us. It threatens performance of fundamental government duties and ensures a destitute future for millions of Americans who had this hidden taxation imposed upon them without representation.  

Any judge or other public employee who refuses to realize this is an exigent circumstance must remember one unique thing about America.  

Ultimately, The People are sovereign. Anything done by statute or amendment can be undone by statute or amendment.  

States must act now on real, rational pension reforms or desperation will impose worse in the future.

Filed Under : Pensions

Comment(s)

Why don't you the Politicians take a BIG PAY CUT. WE THE PEOPLE DIDN'T TELL YOU TO BAIL OUT THE BANKS & ETC. ASK FOR THE MONEY BACK NOW!!!
And make the illegals pay taxes instead of getting paid under the table & making us the honest hard working people suffer.

posted by : pat
Monday, July 18, 2011 at 09:37 PM  | Permalink

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