Public Employee Pensions

Are They the Root of the Public Outcry or Do We Need to Take Another Look at the Budgeting Process?

By Geoffrey McLennan

As we have all witnessed since the 2008 Recession, there have been a rash of public pension violations that have led to much public consternation, proposed changes and enacted reforms regarding employee pensions. Some cases of pension mismanagement nationwide have resulted in fundamental challenges to the trust in the civil service. However, I see a broader problem other than just pension abuses.

Over the years I experienced mostly a rewarding career in upward mobility, professional growth and hopefully a funded retirement. There were times when I wondered if I would ever live to claim a pension. I experienced physical threats from disgruntled external customers, considerable stress from reductions in force and the typical berating that many public employees take over the course of a lifetime from the politically driven. I can recall Paul Volcker, as Chairman of the National Commission on the Public Service (aka “Volcker Commission”), attendance at an ASPA sponsored event at Sacramento State University. He eloquently defended the public service in the United States, including the wages and pensions. It is somewhat disconcerting after 30 years that the Volker Commission’s report still stands as a foundation for further change in personnel management and pensions.

However, we have witnessed some extreme excesses in post-retirement benefits as more broadly defined as deferred compensation. These excesses are clearly a violation of the public trust and no one in or near the public service offers any defense of such selfish actions. Fortunately, public opinion has forced lawmakers and public managers to more carefully monitor pension applications and payments. Quite frankly, some pension managers and public employers have been remiss in managing some pension applications. Recent reforms have addressed the most egregious pension abuse cases (City of Bell, California) and if pension managers act diligently, then these worst abuses should not recur.

Several local governments have been forced to cut public safety and other public services to fund existing public retiree packages, including public safety pensions. This has been the case for a minority of local governments in California and possibly in other states. However, the promise of long-term retiree obligations should be no surprise to responsible managers and elected officials. These same responsible parties incurred considerable long-term indebtedness for other projects and procurements along the way. No need to mention the localities, but the bonded indebtedness for civic centers, public works and other municipal improvements add to the broader consideration of the long-term budgeting responsibility. The Dodd-Frank law makes that responsibility permanent.

The shortcomings of several localities budgets were noted in the February 2013 issue of Governing Magazine. In this article titled “Mind the Gap,” many cases of local government budgetary distress are indicated by the possibility of “fiscal innocence” and other means of ignorance of new budgetary laws on fiscal responsibility. Many localities have had their credit rating downgraded due to missed bond payments during the recent recession. As further noted,

“Municipal and state leaders face an entirely new regulatory climate with the passage of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act. That law is bringing increased scrutiny of government financial performance on all levels.”

Dodd-Frank will also mandate new accounting guidelines for pension liability reporting. We must require that all obligations in budgets are completely reviewed consistent with law and thorough stewardship of the public trust.

When elected officials and other budget stakeholders do not address all budgetary obligations, then we have a serious problem beyond unfunded pensions. We lose the public’s trust in public administration and eventually we lose quality public employees who offer the services.

Do you view this issue differently?

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