Monday, June 18, 2012

Fareed Zakaria Shocker: 'Single Biggest Threat to the U.S.'s Fiscal Health' Is Public Employee Pensions

Less than two weeks after Wisconsin's Republican Governor Scott Walker won his recall election, you wouldn't expect a prominent liberal media member to be coming down on public employee benefits.

Yet there was Time magazine's editor-at-large Fareed Zakaria publishing a rather shocking article Friday with the equally shocking headline "Why We Need Pension Reform":

Warren Buffett calls the costs of public-sector retirees a "time bomb." They are the single biggest threat to the U.S.'s fiscal health. If the U.S. is going to face a Greek-style crisis, it will not be at the federal level but rather with state and local governments. The numbers are staggering. In California, total pension liabilities--the money the state is legally required to pay its public-sector retirees--are 30 times its annual budget deficit. Annual pension costs rose by 2,000% from 1999 to 2009. In Illinois, they are already 15% of general revenue and growing. Ohio's pension liabilities are now 35% of the state's entire GDP.

The accounting at the heart of government pension plans is fraudulent, so much so that it should be illegal.

After sharing some of the numbers in California - where public pension funds are actually basing future monetary needs on the stock market growing 40 percent more than it did in the go-go 20th century! - Zakaria demonstrated how the negotiation of these retirement plans is "democracy at its worst":

Public-sector unions, powerful forces in states and localities, ask for regular pay increases. Governors and mayors can dole out only so much in salary hikes because of requirements for balanced budgets or other constraints. So instead, they hand out generous increases to pension benefits, since those costs will hit the budget many years later, when current officials are themselves comfortably in retirement.
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