By Stephen Eide | In my recent report “California Crowd-Out: How Rising Retirement Benefit Costs Threaten Municipal Services,” I document how rising public pension costs continue to deprive vital public services of funding. There’s only so much room in state and local budgets. When pension costs rise at a rate above revenues, taxpayers can expect less in terms of basic infrastructure maintenance, public safety, education, and quality-of-life services such as parks and libraries.
But it’s not only taxpayers who are getting a raw deal here. The status quo on pensions is not great for public workers, either.
California local government employees’ salaries grew 4.6 percentage points slower than private sector workers’ salaries over the past fifteen years. Same labor market, different takehome pay experiences.
To be sure, a big part of the gap is due to rising health benefit costs, which are also more generous in the public sector. Because of union resistance to shift more costs to deductibles and co-pays, government employers have seen their insurance premium expenses climb much more rapidly than private corporations’.
But, more recently, healthcare cost growth has slowed and pension costs have accelerated. Since 2003, state and local governments nationwide saw their pension costs grow 135 percent, whereas health insurance premiums rose 85 percent and salaries 31 percent.
Public pensions in California are among the richest in the nation. All things being equal, the more generous retirement benefits become, the greater threat they pose to budgets. But, in recent years, costs have risen because of an explosion in pension debt, not benefit enhancements.
It would be one thing if workers’ salaries were being trimmed because government employers decided to fatten their retirement benefits. But that’s not what’s happening for more recent hires. Their benefits have been lowered, thanks to California’s 2012 PEPRA law, and their pay has been growing more slowly, as governments find themselves forced to divert new revenues to backfill pension promises made to prior generations of employees.
Despite constant claims that their cause is anti-worker, pension reformers have made many overtures to public employees. A reformed pension system is one better-positioned to make good on its promises. As workers in Central Falls, Rhode Island, Pritchard, Alabama and Detroit found out, legal guarantees amount to little when there’s no more money left.
California has some of the strongest legal prohibitions against pension changes in the nation. But even if governments can’t touch pensions, they can furlough or lay off employees and reduce their pay. And, indeed, they’ve been doing all these things. It turns out that guaranteeing “retirement security” for some is only possible at a cost of job and wage insecurity for others.
In terms of the public’s hearts and minds, the most persuasive case for pension reform remains the effect on services and government budgets more generally. Perhaps union leadership and members will never come around, but the facts remain. Unchecked growth in pension costs means lower wages for government employees.
Stephen Eide is a Senior Fellow at the Manhattan Institute and author of the recent report “California Crowd-Out: How Rising Retirement Benefit Costs Threaten Municipal Services.”