Keeping the Pension Blood Flowing

I didn’t want to let this one slip by without mention:

The business-backed [Rhode Island Public Expenditure Council] found that the state taxpayer contribution to those pensions nearly tripled over the last decade, jumping from $79.9 million in 2001 to a projected $218 million in the coming year. …
… Overall, state personnel expenditures will consume $1.7 billion in the coming year, according to the report, which found that retirement costs are the fastest-growing component of personnel spending.

This trend just can’t be maintained. Voters have to learn to look past this sort of rhetoric from unionists:

Yet [National Education Association Rhode Island Executive Director Bob] Walsh acknowledges that the report will fuel criticism that his workers’ benefits are too rich, especially given the shift in the private sector.
“Just because the private sector jumped off a financial bridge, does it mean we should follow?” he asked…

People who benefit from big government like to argue that voters can, by their votes, decide to do anything: Private businesses determined that they couldn’t sustain generous pension benefits, but voters and their representatives can just choose differently. In a limited, short-term sense, I suppose that’s true. In a sense that acknowledges reality, however, the laws of economics will decide differently, or at least exact a price that voters wouldn’t have been willing to pay had they been well enough informed to anticipate it.

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Stuart
Stuart
11 years ago

You are 100% correct. The math does not work out!
At the same time, you must understand that a doubling would be somewhat normal, given inflation and the cost of goods and services. It is the other 100% (tripling) that is the worry.
Health Care and Housing and many other things have doubled or more in that last decade.
To answer his question about jumping off a bridge, I would say:
“I know you are trying to do the job you were hired to so, and that is all well and good, but reality strikes – we don’t need you to jump off the bridge, but you might get wet up to the knees like most taxpayers have”.
D

Warrington Faust
Warrington Faust
11 years ago

“voters can, by their votes, decide to do anything:”
That is true in a limited sense. When was the last time that public employees salaries were put to a vote? Voters can usually only act with a broad brush, such as “throw the bums out” Voters do not have a line item veto.
Would all of the non-unionized workers out there who have a pension, please raise their hands.
Stuart: “Health Care and Housing and many other things have doubled or more in that last decade.”
While that is true, it is of limited effect. For instance, if you are not looking to purchase housing, the rising cost does not personally effect you.

Dan
Dan
11 years ago

“Just because the private sector jumped off a financial bridge, does it mean we should follow?”
In the movie The Lives of Others, after the Stasi-run police state in East Germany finally crumbled, there was a scene at the end when one of the Stasi high-ups was discussing all of their invasive surveillance of private citizens in an extremely cavalier manner. The protagonist then tells him, in bewilderment, that he can’t believe men like him actually used to run his country’s government. That’s how I feel about men like Bob Walsh when they make unbelievable statements like the one above. It is simply bewildering that men like this have managed to obtain positions of great influence in our state.

michael
michael
11 years ago

Keeping the pension blood flowing right into the pockets of RIPEC’s executive director John Simmons whose $3000.00 monthly defined benefit pension from the Providence Pension System wasn’t enough until a judge hat to tell him it was enough.
Dan’s protagonist couldn’t believe people like that used to run this country. I can’t believe people like that still do.

Ragin' Rhode Islander
Ragin' Rhode Islander
11 years ago

A couple of quotes from economist Herbert Stein (father of Ben Stein, FWIW):
“If something cannot go on forever, it will stop.”
“Economists are very good at saying that something cannot go on forever, but not so good at saying when it will stop.”
Public sector retiree benefits are unsustainable – only how the adjustments are made is left to be determined.
Across the country the public is becoming increasingly aware of the issue, and how they are being taken advantage of by the public sector unions.
If the public sector unions had been smart, they’d have been content with good, but not substantially above private sector, wage and benefit packages, and thus stayed below the radar.
But historically unions never know when to stop (e.g., UAW), and keep getting more until it becomes unsustainable, forcing their employers into Ch. 11 reorganization, if not out of business entirely – imposed from externally driven “unsustainability” in form of competition, recessions, etc. In other words, unions bring a sort of binge-purge prosperity for their members. In the public sector, that externality is going to be political pressure due to the fact that over time the public sector cannot isolate itself from the wealth (or lack thereof) being generated on a macroeconomic basis in the private sector.
Ironically the class warfare that is the unions’ shtick is going to boomerang against them, as the taxpaying “working family” public becomes incensed at paying spiraling taxes to providing coddling wage and benefit packages for the public sector “rich.”

Andrew
Editor
11 years ago

Stuart,
Doubling of the “taxpayer contribution” is not normal, but instead reflects a long history of bad decisions, when the starting point is 10% of total payroll, as was the case in Rhode Island in 2001.
If a pension system is properly funded, the taxpayer contribution should be well-under 3% of payroll in most years.

Patrick
Patrick
11 years ago

Many regulars here will know that I’m not one to side with Walshs of RI. But the only part of his point that I can see is that the great, great majority of working Americans have drastically underfunded their own retirement. When I originally read that passage last week, I saw it to say that the union management is trying to see to it that their members do not underfund their retirement like many in the private sector do.
Someone recently told me of a study done where only 3 out of 12 people have even done any kind of retirement planning and 2 of those 3 are underfunded. Basically 1 in 12 of us is properly planning for retirement.
This is a great fear of mine as I have been planning for my retirement since my first professional employment at 23. I fear that all these “tax-free” 401K plans will become taxed again, because “it’s not fair that 80 year olds are eating from trash cans” while I can still put a roof over my head, feed myself and go on the occasional vacation trip. Just because I lived under my means for years.
I’m already checking out property in the Caymans and looking into their immigration laws. Switzerland is too cold in the winter.

Ken
Ken
11 years ago

I wonder if the increase in RI pension spending has anything to do with over 1,500 state employees that retired to protect their benefits because Governor Carcieri was playing around with the pension benefits and continues to play. I know a few of them and they say they would still be working if it were not for Governor Carcieri. After 30 years your retirement benefits do not increase. It’s actually costing money to go to work but some state workers lover their jobs until Governor Carcieri started to play around. These past years saw a very large knowledge base leave the State of RI workforce. Patrick, Try looking at Retirement Living Information Center: http://www.retirementliving.com/index.html They do a complete comparison of taxes by state for retirement. I retired to HI because surprisingly it’s about 50% cheaper to live in HI as a senior (50 years and older) than it is to live in RI meaning my retirement income is basically doubled by the savings and you still live in the USA. I am living a pretty high life with a lot of amenities. In my retirement situation because of my age my property tax is $100/yr, my retirement income is exempt from HI state income tax, there is no property tax on motor vehicles, boats or motorcycles, excise tax (sales tax) is 4.5% in my county 4% in all others, businesses give up to 50% discounts to anyone over 50 yrs old, 24/7 mass transit unlimited senior yearly pass is $30/yr (on 1 island mass transit is free island-wide), no winter heating bills, no fall, winter, or spring wardrobes required and all beaches are free with free parking. Average year round daily temperature is 78 degrees with plenty of sunshine. Since records have been kept HI has only been hit by… Read more »

Stuart
Stuart
11 years ago

Two things…
Ken, the whole idea of people moving around to wherever things are better for their particular situation (age) is part of our undoing. Our system is based on the fact that people who use and people who don’t use (who used them before) pay the taxes. Not that I blame you for living in HI, but the whole idea of us each moving to avoid taxes AFTER WE USED ALL THE SCHOOLS ETC. will not work in the long run.
As to the doubling over 10 years, the idea is not only that inflation (housing, health care AND energy) has doubled in that time period, but also that money itself would double in 10 years at a relatively low interest rate (at average stock market rates).
Salaries should have gone up at least 50% in that time period, but they probably have not!
In any case, I think we are in agreement for on this situation – it is just one of MANY things which need to be adjusted because of the great bubbles and recession, etc.

Ken
Ken
11 years ago

Stuart, My point to Patrick is I am living 50% cheaper on a fixed income in HI than what it would cost me to continue living in RI. Therefore I can take the other 50% of retirement income and squander as I want or invest it or bank it or put in tax shelter potentially doubling my income without working. Flying back and forth to RI first class or mainland is a lot of fun including the free airline private lounge with all the free amenities including free baggage and 4-course hot meals with a choice of 3 types on the menus and open bar for the duration of the flight! I was offering Patrick information which he could explore verses emigrating to Cayman Islands which get hit each year by hurricanes (although the banking and offshore accounts are big business there). I said nothing about doubling my money in 10 years I don’t know where you got that from! As for moving to ovoid taxes. This is the way taxes are structured in the state of RI…..live in RI and we will tax you to death and even after death or live in HI and we respect you as a senior citizen and your life contributions to society. We all will grow old and will be on fixed income so here are some tax breaks to help you live out your life comfortably and we will not tax you after death. There are other states that offer the same thinking and tax breaks but they have cold winter weather! And by the way, there is one school district with 1 superintendent in the whole State of Hawaii made up of over 120 islands 1,600 miles long and it is run by the state which is supported by state tax… Read more »

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