If you have not read Steve Greenhut’s book on America’s public employee crisis, called Plunder!, this is the sort of thing that would be in store for you for a few hundred pages:
What does it look like when a city of almost 300,000 flirts with becoming America’s largest ever city to go bankrupt? Welcome to Stockton, Calif.
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The city’s fiscal history “has eerie similarities to a Ponzi scheme,” says Bob Deis, the city manager Stockton hired in 2010. Over the years, the city promised employees huge—and unfunded—salaries and benefits, so when trouble struck officials began cutting back on services such as police and fire protection, plus libraries and parks. (wintercow comment here)
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The city recognizes more than 100 different categories of “additional pay” that employees can earn to boost their salaries but that still make basic compensation packages appear reasonable to the outsider. A fire captain earning an annual base salary of $101,000, for example, can easily increase that by $35,000 thanks to additional pay for everything from automatic annual stipends for uniforms (regardless of need) to more schooling.
Stockton safety employees with 30 years of service receive 90% of their highest working salary as a pension, with cost-of-living adjustments up to 2% annually for the rest of their lives. And while the state requires workers to contribute between 7% and 9% of their salary toward pensions, Stockton agreed in a series of agreements with various municipal unions going back to the 1990s to pay the worker portion of the contribution along with its 20% employer share.
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Stockton Mayor Ann Johnston voted for these expensive measures when she served on the city council. “We didn’t have projections into the future what the costs might be,” she told the Record, a Stockton newspaper, earlier this month. She added, “I learned that you don’t make decisions without looking into the future.” (wintercow: repeat this to yourself again and again, particularly when the “E”nvironmentalists argue that private market incentives are short-term focused at the expense of long-term sustainability)
Council votes to approve ever-greater benefits were often unanimous, according to Record columnist Michael Fitzgerald. “Nobody gave thought to how it was eventually going to be paid for,” says Mr. Deis, the city manager. (wintercow emphasis added)
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The big question is whether Stockton is only the tip of an iceberg. The 50 states alone have promised their employees retirement health-care benefits amounting to a $627 billion future liability—and funded only 4% of that cost, according to a recent accounting by Bloomberg Data. Unfunded state and municipal pension liabilities range up to $4 trillion, depending on what future investment assumptions you make.
Read the rest. OK Progressives and believers in good government: I respect that on the campaign trail and in blog posts you get to conjure up stories of “greedy profit-drive insurance companies” dropping coverage (extra credit: go find out how prevalent that really is), and you revel in the theoretical idea of market failures. I’d like you to defend Stockton. I’d like you to demonstrate how this is just such an anomaly that we have no reason to generalize that the same incentive structures doom cities across the country (such as my very dear hometown of Rochester). I’d like you to argue that what we are seeing in Stockton is the result of social forces institutionalizing unbalanced power relationships between rich and poor. I’d like you to argue that raising taxes on the rich will solve the problems in Stockton. Go ahead. Try it.
One irony is that the pension funds and health and welfare funds have suffered from the chaos created by the economic rocket scientists in government. I read recently CALPERS has lowered its expected rate of return, implying that the state will have to kick in even more to an already underfunded system.
I would not blame this mess on the greed of the individual state employees at the bottom of the food chain, but certainly the politicians who secure the votes of the teachers, police, firefighters, ditch diggers, etc., bear the blame for being thoughtless about the consequences of foolishness, promising The Free Lunch.