March 5, 2020
By Rob Roper
Vermont now has a $4.5 billion unfunded public pension liability for teachers and municipal workers. The politicians who created this problem are slow (stationary, actually) to take up the task of fixing this because the numbers are huge and telling someone they’re going to have to suck it up and pay does not promise to be a politically popular activity.
But who should take the hit? Taxpayers or Union Members? Actually, morally speaking, neither.
The reason we’re in this mess is because the politicians charged with building and maintaining the pension system chronically underfunded it on the one hand, and on the other engaged in some book-cooking by making blatantly unrealistic estimates on investment returns, which led to further underfunding.
Why did they do this? Because they wanted to spend the money on other programs. Money socked away in the pension funds, which benefits some in the future, couldn’t be spent on this or that thing constituents were clamoring for today.
Here’s an analogy: You contract with a builder to construct a house (the pension program) for your aging parents (Union members), who are also contributing to the costs. The contract (state statute) stipulates that the builder must spend the money you and your parents give him on materials and labor to construct and maintain the house. But, when it’s time for your parents to move in, it turns out that the contractor didn’t use a good chunk of funds provided to build and maintain your house. He used them to subsidize other projects he was working on around the neighborhood. Maybe they were worthwhile projects: a firehouse, low income housing, a new rec center. But what the contractor did would still land him in court. It was neither honest nor just.
So, who should shoulder the responsibility and financial costs of making this right?
Not the taxpayers. Taxpayers have already provided the politicians with the money to build and maintain the system. To make them pay again would be like in the example above, the contractor telling you that, despite his malfeasance, if you still want your house built, you’ll have to pay him again, in this case through even higher taxes. Um… no.
Not the union members. Whether you agree with the benefits promised or not, they were promised, and that promise should be kept. That your aging parents, again referring to my analogy above, recommended the contractor and keep insisting that he’s a great guy (ie. support the politicians who did this to them) is a question for another time.
The money to fix the pensions should therefore come from within existing government revenues. The politicians who put us in this position should have to bite the bullet and make the hard decisions necessary to make the taxpayers and the union retirees whole. What the contractor did in my analogy was a crime. We don’t hold our politicians to the same standards (unfortunately), but perhaps a just sentence for what they did is having to shoulder the political ramifications of their actions.
Rob Roper is President of the Ethan Allen Institute
{ 9 comments… read them below or add one }
Thank you Rob for emphasizing what we all suspect. The finger pointing has begun but the real heroes are going to be the ones that come up with the fix for this pickle of a situation. What we do know is that it needs to start NOW!
So why pay actuaries for annual actuarial reporting on the cost, as well as recommended annual payments, if our politicians, most of whom probably doesn’t understand the subject very well anyway, just go ahead and pay whatever they like in order for them to have money for their own pet projects. Disgusting behavior to say the least
Hi Rob,
I like the analogy. It was a crime. And if I had the power I would strip some of the politicians of any state benefits they receive today. Arrogance and indifference created this mess. Certainly there should be some different “prioritization” of spending so as to cover the pension debt. State employees made all their contributions and even agreed to pay cuts during the recession. We increased our contributions several times also. It’s infuriating that the legislature doesn’t take full responsibility. Average state employees pension is only about $21,000. The legislature needs to define a funding stream for the underfunding debacle. Not enough testicular fortitude to do so however.
$21,000 is only a help in retirement, presumes that an employee has done things for their own retirement,
$21,000 for 30 year retirement is around $650,000 – not chump change for the next set of taxpayers
Vermont has twice as many bureaucrats as New Hampshire
New Hampshire has twice the population of Vermont
There-fore, each Vermonter has 4 times the” Gov’t employee, salary,benefits and retirement” cost in taxes.
Gov’t employees did NOT cause this problem, it is a problem caused by our elected “Officials”
Rob: I believe, as bad as it will be accepted, but truthfully, you have to look at the taxpayers because they continued to elect the ones who were not addressing the situation, in fact , kept re-electing these clowns. this whole thing is like a worn out broom:
Did the legislators think this problem would take care of itself; like the bristles would grow back on a broom worn out from use?
All good points but meanwhile we are adding new obligations. It’s time to stop the bleeding and, in the next round of contract negotiations, insist that no new workers be hired under the old pension rules. New workers should get funded defined-contribution 401(k) accounts like those in the private sector. We are not breaking a promise to anyone by taking this long overdue step. We may have to pay more currently for workers, but this just means we’re seeing the true cost and must consider it in hiring.
Prior to contract renegotiation, we must keep new hires of teachers and state workers to an absolute minimum because they add to the unfunded obligation pool.
Every time the teachers union wants more it cries: “We need more money for education!” Feckless politicians who benefit from the donations collected from union dues gladly comply. Back before Michael Bloomberg walked back every smart thing he ever said or did, he remarked: “For teachers, enough is never enough.”
Who will pay?
Taxpayers!
The problem belongs to both parties going back as far as I can remember to Dick Snelling and Howard Dean who used the money elsewhere to balance the budget.
Those funds were not available to increase during the good economic times. Evidently the safeguards were not there and crimes like still exist. Not one of the candidates talked
about Medicaid/ Medicare Fraud as well over $4oo billion annually goes uncollected with
a president who bragged about stretching the system so he did not pay taxes.
Great example 3 times declared bankruptcy. We need those representing in all offices
who abide by the law.
Not much of a legacy is it Rob? Some knew when to bail out with their golden parachute.