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 stocked away in the pension funds, which benefits some in the future, couldn’t be spent 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 the 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