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http://pensiontsunami.com/
The oncoming wave of public pension
debt is even bigger than it seems. The purpose of this website is to provide an
overview of the multiple pension crises that are about to drown America's
taxpayers. Our primary focus is on California,
but we also track other states, corporate pensions, social security and
international trends. Now beginning its tenth year, PensionTsunami.com is
edited by Jack Dean.
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Is Spending on Employee Benefits 'Crowding Out' Funding for
Basic City Services? (report - Stephen D. Eide / Manhattan Institute)
Stephen D. Eide, Senior Fellow,
Manhattan Institute
Executive Summary Oct, 2013
“The current system is unsustainable. The
impact of rising pension costs has meant that San Jose can’t hire more firefighters, police
officers, librarians, gang intervention workers. These out-of-control costs are
why we can’t keep all of our libraries, community centers and swimming pools
open.” San Jose mayor Chuck Reed, 2010
“The pension crisis is no longer around the
corner. It has arrived at our schools.” Chicago mayor Rahm
Emanuel, remarking on Chicago’s
decision to lay off 2,100 teachers and school support staff this past summer
“I talked to social-services agencies or
social workers who, when I started to talk about pensions, would ask, ‘Why
should I care about pensions?’ And I said, ‘Because if you don’t, your whatever
it is—homeless shelter, for example—is going to lose thousands of dollars of
funding.’ ” Rhode Island treasurer Gina Raimondo,
2012
Much recent debate over the health of state
and local budgets has been dominated by concerns about how spending on employee
benefits is “crowding out” funds for basic services. The economy is growing,
and spending is up—but taxpayers are seeing little benefit.
Crowd-out finds its roots in a problem of
simple math. Cities can’t run deficits, so when growth in revenues fails to
keep pace with any major spending category, some other category or categories
must be reduced. The effect is most clearly discerned in local workforces,
which are still down by over 500,000 employees since the recession, as well as
salaries. Local government workers’ wages have been flat over the past decade,
after adjusting for inflation, and salary spending has been taking up a smaller
share of city budgets as benefits’ share has grown. Almost unintentionally,
increases in benefit costs are reducing funds available to provide for salary
increases for a workforce which is shrinking overall.
This paper documents the crowd-out effect at a
general level and analyzes budget trends in five major American cities.
Crowd-out is felt in cities in blue states (Los Angeles) and red states (Houston) alike. In Baltimore, unchecked
benefits spending threatens the city’s nascent renaissance. Some cities
have resorted to adjustments that many would describe as gimmicks to respond to
crowd-out, particularly the variety associated with pensions. But other, more
authentic solutions are available. For instance, Boston’s record on managing health-care
crowd-out offers valuable lessons for other states and cities. Detroit illustrates the thin line between
crowd-out and insolvency.
The best thing for cities to do to combat
crowd-out is to keep government small. Benefit costs’ growth
rates—the root of the problem—are significantly determined by factors
out of city officials’ ability to control. But by employing fewer workers,
governments will at least reduce the principal, if not the interest, of what
they owe for benefits.
Governments should also concentrate more of
their compensation costs in salaries instead of benefits. In addition to being
more manageable than pension and health care, take-home pay likely matters more
than benefits in cities’ ability to attract and retain a qualified workforce,
and thus serve taxpayers.
Continue reading at ….. http://www.manhattan-institute.org/html/cr_81.htm#.UmrIQPk3src