PrintDecember 17, 2010
Expose the Public Pension Mess
It seems that many members of the incoming Congress are mindful of the looming tsunami of unfunded state and municipal worker pension liabilities, not to mention the impending insolvency of cities and even states (such as California, Illinois, and New York). A recent estimate put these unfunded public employee pension liabilities at as much as $3.574 trillion. As frightening as that estimate is, it is probably unrealistically low. First, it doesn't include the ancillary costs of retired public employees, such as subsidized health care and other perks. Second, state and municipal governments are, alas, still not held to the same high accounting standards to which private industry is held.
This has moved some recently elected Republicans to initiate discussions about how to prevent the federal government from being stuck with the liability tab. After all, these liabilities are entirely the result of boundless public employee union greed -- greed unchecked by city and state political figures, because those politicians are elected with union money.
An exemplary bill introduced by Reps. Devin Nunes (R-CA), Paul Ryan (R-WI), and Darrell Issa (R-CA) would take away the federal tax-exempt status for bonds from any state or municipality that doesn't report openly its pension-fund liabilities. This bill would help provide accounting transparency and honesty in state and municipal bond sales to consumers, just as Sarbanes-Oxley is intended for publicly traded corporate stock sales.
You would think that this proposal would be an ethical no-brainer, one that would appeal to all people who support transparency of government and integrity in accounting of both parties. But you would be wrong. For example, the executive director of the National Association of State Auditors, Comptrollers and Treasurers, one Kinney Poynter, objects that "[a]ccounting is primarily the states' responsibility and states are sovereign." But this appeal to states' rights is feeble on its face: the federal government isn't trying to force the states to deny exemption from state taxes on the interest from state and municipal bonds when there is no transparency in the accounting of pension-fund liabilities. It is only telling the states that it will deny federal tax exemption from the interest on such bonds. Surely the federal government has the right to stipulate the conditions under which it grants federal tax exemption.
Unfortunately, the American public is as yet not generally aware of the vastness of the problem posed by unfunded liabilities created by these lavish pension and health plans. So the Republicans are well-advised to pass legislation that will, in the bracing words of Rep. Nunes, "smoke the rats out of their holes" -- i.e., make these hidden liabilities visible.
But as useful as the Nunes/Ryan/Issa proposal is, I think it can be strengthened by adding a further provision. I suggest that their law additionally require states and municipalities issuing bonds to make public the names, pension amounts, and departments of high-pension government retirees -- say, those receiving pensions of over $100,000 a year. My suggestion is prompted by news that various groups trying to get access to such information are being stonewalled by public employee pension funds.
This fight pits organizations such as the California Foundation for Fiscal Responsibility, the Manhattan Institute, and a group of Ohio newspapers against various municipal pension funds. For example, the California Foundation for Fiscal Responsibility has sued the San Diego County retirement fund to get the latter to release the names of retired county employees receiving $100,000 or more in annual pensions. The Foundation has applied for access to records on dozens of occasions, especially focusing on the pension fund behemoths CalPERS (the California Public Employee Retirement System) and CalSTRS (the California State Teachers Retirement System). CalPERS has over 9,000 employees receiving $100k or more in pensions; CalSTRS has over 3,000.
Considering the fiscal crises besetting California cities and other municipalities (including San Diego) and the state government, and considering the scandalous pensions that have come to light in recent months, disclosure of exactly who is earning outsized pensions would seem warranted. Consider just two examples. The first is the city administrator of tiny LA suburb Bell (the aptly nicknamed 'Ratso' Rizzo), who is eligible to receive over $600,000 a year for life from CalPERS. Second is the case of Lonnie Franklin, Jr., who has been receiving a nice disability pension (for a shoulder injury suffered while collecting trash) from the City of Los Angeles for nearly twenty years, during which time he managed to murder ten women -- presumably not using his injured shoulder!
No doubt stories such as these could be found in the records of pension fund agencies in New York, Ohio, and most other states.
The pension funds are fighting the release of this information. They argue that identifying the names and pension amounts of retirees will subject these people to "identity theft, home invasion, or other fraud," in the words of Brian White, chief executive of the San Diego County retirement system.
But this concern is risible. The information we are talking about here would give identity thieves little to exploit. Nobody is asking for the retirees' social security numbers, bank account information, or anything of the sort. As to home invasion, anybody receiving a hundred grand in retirement is no doubt living in a pretty pricey neighborhood, one in which all of the homes are already bound to be known by potential burglars and home invaders.
And we should remember that the level of disclosure here is much less than what campaign finance laws already require of even the smallest donors to political campaigns.
Of course, any state or municipality that feels these transparency demands are excessive would be free to refuse to comply. But the federal government would be equally free to refuse tax-exempt status for the bonds issued by that state of municipality.
Gary Jason is a contributing editor to Liberty and a philosophy instructor.
