The New York Times reports that while private firms reduce the risk profile in their pension investments the public sector pension managers are making riskier investments, ISO higher returns needed to cover promises made but not yet funded that you--yes you, the taxpayer--are underwriting....
Said one prominent investor:
“In effect, they’re going to Las Vegas,” said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. “Double up to catch up.”
A WSJ editorial calls "college dreamers" the students at California universities who are protesting a 32 percent tuition hike which, the WSJ informs us, is to meet promises made to--who else?--public sector unions. In 1999, it seems, the California Legislature (Democrats, naturally) voted pension benefit increases that assumed annual return on investment to run 8.25 percent in perpetuity. Yep, that's forever. Then, in 2002 the Golden State Solons extended benefits to new categories of workers. WSJ explains:
In 2002, the state legislature further extended benefits to many nonsafety classifications, such as milk and billboard inspectors. More than 15,000 public employees have retired with annual pensions greater than $100,000. Who needs college when you can get a state job and make out like that?
In the last decade, government worker pension costs (not including health care) have risen to $3 billion from $150 million, a 2,000% jump, while state revenues have increased by 24%. Because the stock market didn't grow the way the legislature predicted in 1999, the only way to cover the skyrocketing costs of these defined-benefit pension plans has been to cut other programs (and increase taxes).
This year alone $3 billion was diverted from other programs to fund pensions, including more than $800 million from the UC system. It is becoming clear that in the most strapped liberal states there's a pecking order: Unions get the lifeboats, and everyone else gets thrown over the side. Sorry, kids.
Get ready for more. The governor's office projects that over the next decade the annual taxpayer contributions to retiree pensions and health care will grow to $15 billion from $5.5 billion, and that's assuming the stock market doubles every 10 years. With unfunded pension and health-care liabilities totaling more than $122 billion, California will continue chopping at higher-ed.
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Bottom Line. What is on display increasingly is a neo-corporatism that bids fair to turn America into not only California, but Argentina. When Juan Peron ruled Argentina with an iron fist, Evita at his side, he formed political alliances with the industrial trade unions. President Obama and Democratic state Governors are allying themselves not with dwindling private sector unions, but public sector unions. The latter need not worry about belonging to an enterprise that makes a profit. Their claim rests not on the government that employs them but the taxpayer whose taxes support the government.
In short, states are betting on outsize, unsustainable financial returns to pay off favored unions. In the private sector this is called a Ponzi scheme--paying of old investors with money taken from new investors--in this case, paying public employees promised returns by mulcting taxpayers.
This lasts until the financial musical chairs stop. Sooner or later THEY WILL.
Letter from the Capitol, LFTC, 9/11, Economy, Conservative Politics
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