For several years, Fordham-Ohio has been pointing to red flags when it comes to the sustainability of the state teachers' retirement system (STRS). Our report by economists Mike Podgursky and Robert Costrell three years ago outlined several problems facing STRS in its then-current iteration, among them the plain and simple fact that unfunded liabilities (estimated in 2005 to be $20 billion statewide, or $4,000 per household!) were mounting like a ?ticking time bomb.? Though not the sexiest of all policy areas, bloated pensions and rising health care costs (among all public employees, not just teachers) have gained a lot of attention since then.
Widespread layoffs, rising unemployment, and general symptoms of any recession (let alone the worst we've seen in half a century) brought these issues under the microscope. On top of that, a new tide of Republican governors makes it all the more likely that several states will see changes to public-employee pensions and may witness bloody policy battles between their respective state leaders and public employee unions.
Two days after this year's midterm election, Stateline.org reported that at least six new governors (Republicans in Alabama, Nevada, Pennsylvania, Tennessee, and an independent in Rhode Island) may push for 401(k)?style (defined contribution) plans or hybrid plans to trim costs. At minimum, among those leaders who haven't yet expressed the need for overhaul, nearly all would at least agree that current public pension systems are in serious trouble. This is significant when considering that just three years ago, Golden Peaks & Perilous Valleys prompted denial here in Ohio that it ?is wrong to imply the retirement system is in crisis ? such alarmist talk is factually inaccurate.?
It's safe to say that times are a-changin.' The LA Times' weekend coverage of the recent Republican Governors Association conference captures this new sentiment well. Republican governors will take on public employee unions, especially teachers unions, not only because they think that public employees are ?over-benefited and overpaid? but because, as Minnesota Governor Pawlenty noted, ?the public is on our side in this issue.? Gov.-elect of Wisconsin, Scott Walker, depicted this sense of moral outrage well:
We cannot and should not maintain a system where public employees are the haves and the taxpayers footing the bill are the have-nots.
Look for some serious changes to?public employee pay/benefits, and?state pension systems,?coming down the pike.? If nothing else, bringing such spending back in line with economic reality may be the most significant silver lining of this brutal recession.
- Jamie Davies O'Leary
