This is one more reason why I just don’t see us anywhere close to a recovery in the near future.
These looming budget crises are hardly pie-in-the-sky: state governments have promised far more than their taxpayers will ever be able to deliver. A large amount of this problem is the result of financial malfeasance at best, and outright fraud at worst.
Illinois borrowed $10 billion so they could invest the pension system on margin. This is a serious breach of fiduciary duty. Where are the prosecutors? Does anyone care?
It’s not much better here in Kentucky, where past governors–seeing the need to reduce the number of state workers–offered sweet pension deals to get employees to retire early. The Kentucky Retirement System (KRS) normally requires 27 years of service, but Governor started a deal–not challenged by his successors–that allowed State employees to “buy” 5 years, allowing them to retire at 22 years, with health insurance benefits to boot.
While the front-end goal was realized–the state was able to get many employees to retire–the unintended consequences have been very staggering:
(1) Many of those retirees came back as contractors–or simply rehired as state employees–to the same jobs, and are now drawing double the money or more.
(2) The mass retirements have created a financial structure that–with the existing taxpayer base–is not supportable.
Kentucky is not as bad as Illinois on that front; OTOH, we will still have our reckoning.
And the solutions to this range from bad to downright ugly. Yes, the states made promises to their workers on behalf of the taxpayers. Yes, there are retirees who acted under the assumption of that promise–making retirement decisions that would not be otherwise prudent. Yes, they could sue for the money and probably win in court. But you know what? It’s a moot point.
This is because the laws on our books cannot overturn the laws of economics, which shall not be up for repeal in the forseeable future.