April 19, 2002

Commentary

Timebomb for Taxpayers

By Jon Coupal

Of all the credit card offers you get in the mail, how many do you even open? Even when the outside envelope shouts “Sign up now for a low introductory rate,” or “You’re preapproved,” most of us just yawn and throw them in the trash.

Most responsible citizens hold a few credit cards for personal convenience or emergencies. Even if we don’t pay them off in full every month (and lots of folks do), we fully appreciate the dangers of becoming overextended. We understand that credit is not free, it is money borrowed that must be paid back with interest. It is debt that we intend to repay, not leave to our children.

But government has a different mentality regarding debt. Politicians do not hesitate to promote passage of bonds that the United States Supreme Court has described as a burden that must be repaid by “generations yet unborn.” Although bond financing can be used for projects that provide long-term public benefit, politicians are acutely aware that massive borrowing also returns political gains.

Now, in their endless pursuit of campaign contributions and votes, the Sacramento politicians have come up with a new wrinkle in using the public’s credit card.

In 1999, Governor Davis signed a bill that allows radically increased pensions for public employees. How generous are the new pensions? Sacramento Bee Columnist Daniel Weintraub, a critic of the new system, described the situation this way. “The new pension plans make it silly for many employees to remain on the job.”

Under new rules being adopted around the state, law enforcement personnel are being guaranteed 3 percent for every year of service, meaning that a police officer, who is at least 50 years old, with thirty years of service could retire with 90 percent pay. This is about 50 percent more than was typical under the old system.

Non law enforcement personnel are also eligible for a huge increase in pension benefits. The worker with 30 years service can get 60 percent of his or her salary, as compared to 45 percent previously.

Since the new rules were made retroactive — applying to years already worked — many public employees are bailing out.

Sacramento County may be typical. The county expects to lose 800 employees in the coming year, about twice the usual number.

How serious a problem is this for taxpayers? Public employee unions justified the increased pensions based on stock market profits realized by government pension plans. But the Wall Street gravy train has ended. It is the taxpayers who are obligated to make up the difference if funding for these constitutionally guaranteed pensions falls short.

San Diego County officials are considering a bond measure of hundreds of millions of dollars to cover the cost of new benefits. Other local governments may soon find themselves in the same fix.

These rapidly growing pension obligations are ticking time bombs for taxpayers. Politicians are buying votes today with money our children must repay tomorrow. The only way to defuse this looming fiscal disaster is to establish new “tiers” of benefits for new hires so that over time, pension costs can be brought back to some semblance of sanity. Ultimately, it may be necessary to put these permanent increases in costs to some sort of voter approval. After all, we do this with bonds, which also will be paid by future generations.

Jon Coupal is a recognized expert in California tax policy. He is an attorney and President of the Howard Jarvis Taxpayers Association with offices in Los Angeles and Sacramento. Coupal can be reached at www.hjta.org.

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