There have been many articles about the budgetary crisis gripping various states and cities, including our own town.
Reading up for a column on the subject, I came across this factoid from SUNY’s Nelson A. Rockefeller Institute of Government: state tax collections plunged an inflation-adjusted average of 9.2 percent in FY 2009.
As the village council wrestles with its budget challenges — how to deal with a $4.5 million deficit — and other local boards prepare to face their own potential shortfalls, it seems increasingly clear that something more fundamental needs to happen than trimming programs or even reducing local government to its core services, as the mayor and Commissioner Bob Barnett have espoused.
There’s an elephant in the room and its enormous appetite and gargantuan size must be confronted. I’m talking about government personnel costs and pensions, the like of which most mid-level private sector employees will never see.
The joke around my house — where the husband holds an MBA in finance from a premier institution and the wife is a practitioner of a dying craft — is that we should have gone into education.
Never in my wildest dreams did I envision a middle age where the undervalued teaching profession of my youth (Substandard pay! No respect!) would eclipse financial services, law and — wait for it — journalism in esteem, pay, hours, benefits and, in particular, retirement pensions.
I’m not picking on educators. It’s a tough job and one that warrants a decent paycheck and competitive benefits. Whether that paycheck also should include four years’ worth of six-percent bounces as a career finale, dozens of bankable sick days and a retirement paycheck equal to as much as 75 percent of on-the-job pay, well, maybe — so long as society can afford such largesse. Remembering that similar largesse also applies to municipal workers, federal workers, police, fire and military, and even elected county, state and federal officials.
It’s no wonder that, compared to professional-level, private-sector jobs — which have seen their pay, benefits and job security steadily erode even as work responsibilities and hours have spiraled — the public sector is starting to look pretty cushy.
Case in point: When the economy tanked last year, businesses responded by immediately bringing out the sharp shears and lopping away at pay, benefits and thousands of jobs.
How many accomplished, skilled professionals do you personally know who have seen their pay frozen, their benefit costs increased or their jobs pulled out from under them in the past year? I know several, including close friends and family members.
Reaction to economic conditions has been slower in the public sector, where step increases, staffing levels and other job fundamentals are contractually predetermined.
To its credit, the village acted quickly to put into effect a hiring freeze and work furloughs, and in D99, newly minted teachers are being actively recruited to fill openings left by retiring veterans.
But across the board, pensions remain unassailable because control over them lies farther up the food chain, in Springfield. And pay scales, raises and benefits are steadfastly maintained by boards that can’t fathom how to make changes without unleashing the wrath of the unions or parting company with administrative recommendations.
The inaction fails to address a hard reality: Expenses are far exceeding revenues at virtually every level of government. And especially in terms of labor, which accounts for roughly 75 percent of local governmental budgets.
The future looks even worse, leaving many observers to deduce that the old ways are simply not sustainable, no matter how “deserving” the workers in question or how well-intentioned the taxpayers. It’s not about spreading the private sector’s misery around, it’s about securing a financially viable future.
The issue isn’t partisan, but it is unfortunately highly political, particularly for elected officials who will inevitably see their future prospects dim if they get serious about confronting union clout.
In response to yesterday’s column, a reader shared this response from state legislators he contacted about the issue:
“I made that point in a recent letter to Senators Dillard and Cronin and Rep. Bellock. Cronin did not even acknowledge the letter. Dillard and Bellock agreed with my no income tax hike, but completely ignored my comments about public payroll costs.”
Clearly, it will be up to the voting public to spearhead the necessary changes. And I count among that public government workers who realize that the future economic health of our towns, states and country trumps individual interest and personal gain.
Incidentally, my parents are retired government workers. My 82-year-old father willingly acknowledges that he has taken far more out of the taxpayer coffers than he contributed during his 30-year job as a postal worker. He and my mother have been comfortably, though not luxuriously, retired for 20 years.
And they are both quite aware that their college-educated children, one of whom holds an advanced degree, will be lucky to be similarly advantaged in their golden years.
This is the first in a series of articles. Look for part two next week.
Elaine…you’re spot on, public pensions are unsustainable.
Many early state constitutions expressly forbid public pensions, as the authors knew how they could get out of control. Alaska and Michigan have eliminated pensions for future hires in order to phase out the costs. That’s coming soon for more states.
We have the second-oldest population on the planet. Tens of millions of boomers will be retiring and selling funds at the same time. Tax revenues are declining, and unemployment is double what the Feds say.
Who’s going to pay these growing costs when we are already overburdened by taxes to pay for the ever-growing super-state?
Agreed. It is not merely about paring things back to focus on core services but also about paring back the costs of providing those services. The luxury of simply shrugging and saying “we can’t do anything” about rising personnel costs no longer exists. Make bold decisions.
It’s been pointed out here at DGreport that 58 and 99 both have higher budgets. Not bold. 99 now wants to spend $100,000 to show taxpayers they have to spend $10,000,000 on 2 new football stadiums and tracks? Save the DARE program Mayor! The 99 board needs it because they must be on drugs to think that’s okay.
If you were to take the present value of those public pensions, out for the term of those average pensions, most “civil servants” would be deemed millionaires, as compared to the average private citizen. There was a time, whereby civil servant wages were well below that of the private sector. Pensions were a “subsidy” for those lower wages. Since Private sector wages have trailed inflation, and for that matter, trailed the increase in public sector wages, the difference has shrunk dramatically. In addition, public sector employment growth has outpaced private sector employment growth for the last few years. Its getting to the point whereby public sector employees become the “millionaires” versus the private sector, when the “value” of their retirement benefits are taken into consideration. These millionaires are growing at a faster pace than those in the private sector. At some point you will have to tax more and more of the private sector to keep up with this disparity…albeit unintended. Something has to change, and it won’t unless we all go to the polls and change it. This state has certain pension laws which bind the hands of what our Village has to pay as it pertains to pensions. At this point those in control of our state really have no desire to change their own pensions….. GO TO THE POLLS people and vote for pension reform….
All public servant and government employees are going to have to take pension reductions. The pension system is already bankrupting local, state and federal budgets. We still pay to maintain the same level of pension funding no matter the economy. That is what is not sustainable. I don’t mind pitching in to help teachers and cops retire. The issue I have is that these pensions will pay these people in retirement the same of more than they made while working. WOW!! Everyone across the board needs to make concessions.
Our political system fails miserably when it comes to the responsible financial management of long term programs with back loaded benefits.
This is an excellent article that is one facet of a massive problem facing taxpayers at every level of government. Medicare, social security and public employee pensions are at the top of the heap of this problem.
As others have noted, the public sector cannot indefinitely draw in ever greater portions from the private sector. But as our occasional visitor to this site, Bruno, used to point out, power is not handed over. It must be taken. Nothing will change until enough people work together to force the issue and forge a consensus to tip the balance of power.
I beleive Michigan and one other state, I forget who, have ended defined benefit pensions and moved to defined contribution pensions (401K’s) for new hires in the public sector. It will take 30-50 years to move out from under the public pension system debt obligation.
How soon we forget: Teachers, Police Officers, Firefighters, Public Works personnel have “settled” for modest salaries that have been fixed upon agreement; despite economic boom times. When the coffers are overfilling, why doesn’t the “Higher
Degreed” clammer for pay raises for the providers of these essential services. But OMG, as soon as we see a down turn in the economy the fingers start to point. I ask all you finger pointers to do this: Ask yourself what have you done for the greater good of our society and what concessions are you making in your workplace that benefit anyone other than your employer.
Just how high do you think those boom-time private sector raises have been?
As for the beneficiaries of any private-sector concessions, of course it’s the employers — unless you count the employees who just may get to keep their jobs. Don’t get me started on the travesty of exorbitant executive pay and benefits. I’m no apologist for big business — I think it’s become more and more amoral as time goes on, with personal greed the guiding motivation of too many (Madoff, Wall Street mortgage sharks, the list goes on and on).
But don’t confuse these people with those in the trenches who have seen their benefit costs increase, their retirement bennies vanish and raises maintained at a modest or non-existent level for years.
If our economy is going to stay on the tracks, changes also need to happen in the private sector, where corporate chieftains have been all too willing to squeeze their workers during good times and show them the door during bad.
Just my opinion.
I don’t care how much teachers, police, fire fighters or anyone else do for society. This country was founded upon the principal that all Americans were created equal. They all do a great service but they are people and they are not any more important than my wife or your uncle who may not be in those fields. All of those positions in Downers Grove pay VERY well these days. The days of the poor public servant are over Monkey. The market should set salary ranges based on needs and expertise. This is not the case in any of those fields no matter how much police/fire personnel put their lives on the lines for us everyday. They all have unions who artificially set a pay scale. If you allow the market to set salaries for police and fire personnel I bet the salaries rise. I cant say that the pensions would rise or benefits but salaries would. Let me show you why. A police officer and fire fighter put their lives on the line every day for us. Based on that fact and the training, education and expertise they need to perform their duties this salaries should skyrocket. Like I stated before the benefits would suffer and they might have to do a 401k like the rest of us but they would get paid more. Pensions and health care costs keep those salaries low. Pensions cost to much and thus creates a fiscal issue where you cant pay cops and fire fighters too much because you are on the hook for a full pension for many years after they no longer are an asset to your community. These are facts people…Facts suck, but they are the facts.
EJ, Exactly my point You ask: Just how high do I think those boom time raises have been? Well just high enough to put this country into a state of shambles. So let’s do what is easiest, put the blame on the everyday man, his union, and his benefits (hers as well). It’s like the Tortoise and the Hare. Every time the Hare looses ground he cries foul. Why, can’t you see! It’s the tortoise’s fault.
I’m really trying to understand your point — God knows I’m not the worlds foremost authority — but I’m struggling with what you mean when you write “just high enough to put this country into a state of shambles.”
Could you elaborate?
Ok EJ, I’m not referring to the office clerk who sits in his/her cubicle staring at a computer screen or the store teller who shows up everyday and takes what they have agreed to. Lets say, start with middle management on up, or perhaps one tier above middle management; which I believe would be representative of a large portion of our community. You know the ones whose bonus is dependent on the bottom line. Profits soar along with their mutual funds, bank accounts, and the thickness of their mattress. No problems with the same old same old, until the swell subsides. The argument that the everyday man, who shows up and does what he/she has agreed upon is what has tanked this country;and therefore it is their responsibility to make the concessions needed to keep this sinking ship afloat is a tired and old argument. Sorry. The American people have voted to change the same old ways of business and blame. No one is buying it anymore. I realize that this site does not represent the opinion of more than a dozen or so residents, but this is my opinion and I would hope I do not stand alone.
One more thing. And this will be my last post on this thread (I promise). The only thing that is unsustainable is if you are making more than $250,000 a year for what you have been doing over the last eight years.
Chad makes a very good point about generous benefits surpressing cash salary. Few people realize it but the pre-tax annual salary equivalent value to fund a a high percentage of final salary early age retirement benefits is very high. The generous coverage of health benefits adds to the effect that Chad was describing.
There seems to be a big misimpression of compensation of the private sector. Maybe accounts of investment banker salaries distort what people think. I don’t know. The reality is that typically a company will have an annual amount to award that is near or a tad more than inflation. Then it is distributed according to individual performance. There are no COLAs and there are no automatic increases just because you have been there another year. Its what the company can afford to pay in a competitive environment.
So let me get this right. It’s Bush and the greedy secretary in the cubical that killed our economy. When has anyone ever worked for a poor person? Monkey, the merits of the free enterprise system are stamped all over the country. Let me just show you how those greedy people have ruined this country.
–Sanofi-Aventis maker of Lantus, an insulin medication for diabetes.
–Scott Sabolich, Inc. makers of prostetic limbs.
–Apple Computer, maker of one of the first computers.
–Ford Motor Company, maker of the first car.
–Boeing, maker of airplanes
–Proctor and Gamble, maker of many products for the home.
–Novartis, one of the makers of the seasonal flu vaccine.
All of these innovations would not be possible with out the free enterprise system. Just because you go to work and draw a paycheck doesn’t mean that the people who risk their life savings to open a business and create jobs are the reason our economy is the way it is. There are many factors. We are merely speaking about the unsustainable pension contributions all over the country. People are living far longer than ever before thus adding more of a burden to the tax roles. You are right Downers Grove is made up of many middle income workers who work very hard. I would also say that most of those workers do not have a pension to rely on. Kudos to you if you do. You cant just keep funding pensions at the same level and raising taxes to pay for it. What percentage of your income is acceptable to pay? 40%?…60%?…how about 80%??? Eventually, you will have no income and just take handouts and stand in government lines. That is not America. Its not Bush’s fault people. He didn’t help, but it wasn’t his fault. The blame has to be on the past 75 years of politicians who failed to plan properly. Monkey I am sorry we disagree but it is good to get our opinions out there for debate. That is healthy.
I’d encourage all of those who succumb to the ever so popular class envy tirades to look in the mirror. The public sector has cannibalized the private sector. YOU, with union backed tenure, iron clad contracts and pensions that allow you to retire at 52 ARE the ruling class now. The rest of us will be working until we are fossilized to feed the gnawing beast.
Give Ayn Rand’s “Atlas Shrugged” a read. At some point those shouldering the burden can’t bear the load, shrug and let if fall with a thud.
This issue is gaining traction. The link below is to a Tribune commentary column in the paper today. Some of the public pensions are nothing short of extraordinary; not to mention retirement health benefits too.
http://www.chicagotribune.com/news/opinion/chi-oped1027byrneoct27,0,5371836.column
Coincidentally, there is a letter in Voice of the People on the same topic from a disgruntled taxpayer today as well.
Thanks for the link! Maybe those government workers and public servants should be the only ones paying into their pensions. That would sure even the playing field. That shifts the burden from the tax payer to the employee. Seems like an amicable solution to me. That is how the private sector funds pensions and 401k plans.
I also would like to see government and public servants health care benefits terminated once they are eligible for Medicare.