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Manhattan Institute - California Crowd-Out: How Rising Retirement Benefit Costs Threaten Municipal Services: In recent years, California municipalities have seen retirement benefit costs grow at a rate above that of taxes, fees, and charges. “Crowd-out” is the term given to this condition by some public officials forced to deal with the resulting fiscal strain.
Balanced budget requirements mandate that when costs grow more rapidly than revenues, something must give. All too often, this has meant reductions in core government services, most of which—police, fire, libraries, parks, and street and sidewalk maintenance—are delivered at the local level in California.
Retirement benefit costs have caused California localities to underfund basic infrastructure maintenance needs, even in affluent areas such as Sonoma County. Teachers in Los Angeles are threatening to strike over stalemated contract negotiations, as the school district has found itself unable to satisfy union demands for increased personnel and salaries, as well as its long-term benefit commitments.
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Fox & Hounds - What Brexit Could Mean for Public Pensions: Since Britain’s stunning vote to leave the European Union, U.S. markets have already plummeted and markets around the world are in mayhem. Economists warn that the vote will continue to have adverse consequences on financial institutions and markets around the globe, including the U.S., for an unforeseen amount of time.
So what does that mean for public pensions?
Most American public employee retirement systems are heavily invested in stocks because they are counting on high investment returns to cover huge gaps in funding, which were created by decades of over-promising benefits and underfunding annual contributions.
As a result, public employee retirement systems have become unsustainable and the problems have been compounded by continually increasing benefits based on unrealistic and risky market expectations. So when the stock market turns negative, as inevitably it will, pensioners will run the risk of losing their retirements or taxpayers will be left picking up the shortfall. High risk investment practices are particularly dangerous in periods of market volatility because of the potential for big losses that cannot be recovered before the next recession.
If pension systems were set up with less risk (as they once were), more sharing of that risk and lower return expectations, then the real cost of retirement benefits would be more apparent to everyone and retirees could count on being paid what they have earned.
Today’s state and local public employee pension system is already in crisis with more than $1 trillion in unfunded liabilities. Brexit should be the wake-up call drastically needed for policymakers to turn the tide and make the systems sustainable. If they don’t get control of the public pension crisis now, events like a Brexit mean more and more plans will get further and further behind on their funding obligations. And the consequences for taxpayers and retirees are dire, as we have seen in Detroit and Puerto Rico.
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And then there is this news
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