Also not on the ballot was any discussion of how Chicago spends it's billions of dollars that led to this budget crisis, though I'm sure there are numerous programs both less profitable and less popular than this one.
It’s the easiest way to promise low taxes today and shift expenses onto future generations who have no say. It almost works as long as people keep having 3+ kids and the tax base keeps growing. Not so much once population growth stalls and the tax base suffers income stagnation.
There was hope of a Federal bailout of all pension funds, numerous covid19 bills tried to bury them into the dollars, but fortunately that may be off the table as the Congressional elections did not pan out as needed. Yyes, the expectation was the Feds would not use the Pension Benefit Guarantee System to salvage something but actually fund them with tax dollars. The PBGS should be the default solution but is not a friendly solution as benefits are generally brought back from silly levels.
The issue with many public pension systems is that too many payouts are excessive. No pension system, notably no public, show being paying out six figure retirements in addition to health benefits. California had to use a law to cap theirs around 125k but that has faced numerous challenges and may see more in the future.
They do deserve their retirement pay but it needs to be reasonable and equal across the board to best serve the public and employee interest. The lower paid employees are not well served and the managerial and certain others are over compensated in retirement.
[0]https://www.illinoispolicy.org/reports/pension-apocalypse-co...
Anyone who thinks that's "fair" really needs a reality check. 600k pensioners in Illinois [1], many of them living out of state, and the ones that live in-state aren't even taxed on their pension income. They also don't have to pay for health insurance. This is simply insane. There's really no other word for it. This needs to be indexed to private benefits or otherwise tethered to reality.
Sidenote. We need a rethink of public service in this country (US). The old bargain of "you get paid less working for the government but the benefits and job security are better" needs to go. Everyone receiving this $2 million entitlement is going to say, well, I work for the government so I deserve my "better benefits". It shouldn't matter if you work private or public sector. There needs to be some equivalence otherwise you get Illinois, where politician after politician promises great treatment to AFSCME and SEIU and to nobody's surprise, no real attempt is ever made to fix this broken system.
As far as the $2 million figure, if you go to any retirement calculator and try to figure out how much you need to save to have a similar lifestyle in retirement as to working, you will indeed find they advise you to save $2-4m. In the private sector, you're expected to do this on your own, but you get a higher salary to compensate. Looking at my own career, a comparable government job seems to pay about $40k less than a private sector job.
If your argument comes down to the public pensions being too generous relative to private ones, shouldn't we instead make private pensions more generous? Why do we want old people who work their whole lives to have a massive step down in lifestyle when they retire? Is that what you want for yourself or your parents?
I'm sure everyone is in agreement for giving everyone an awesome life. The problem is no one wants to pay for it. The proof is that voters won't vote for a politician who would compensate government employees a cash amount in their 401k equivalent to the defined benefit pension, because that would require increased taxes compared to a politician that pushes those costs into the future via defined benefit pensions. And taxpayer funded defined benefit pensions and retiree healthcare are a proven vehicle for corruption where costs are shifted from today to tomorrow.
And unless the government has the power to print money, they should not be in the business of promising people money decades in the future. That's the only way I see to prevent a repeat of IL/Chicago/Detroit/NJ/CT/RI/KY/CA/San Diego, and the list goes on and on.
It seems the real answer to this would be to have a more generous version of social security at the federal level. And the interim answer is to switch to defined contribution pension plans at the local level, I suppose. Though one thing I don't understand is how governments plan to attract workers when they pay substandard salaries and don't even offer very generous benefits anymore. I was looking at government jobs with the city here (which has a defined contribution pension pretty similar to a 401k), and across the board it was so much worse than any private sector job I've worked.
I don't see how it could have played out any other way. Politician A offering low taxes and high services by skimping on saving for future benefits is 100% going to win versus politician B offering high taxes and a fiscally responsible government. And it still plays out that way, until the system reaches a nadir, and it is forced to change, such as Puerto Rico or some of the other aforementioned cities and states.
Government should offer people competitive pay, and the idea of it being okay for government jobs to offer less pay in exchange for more stability and retirement benefits should go the way of the dodo, as we can see it just results in long term pain.
I suppose we are getting technical here, but at some point someone working for these governments (an actual person with a calculator) has had to sit down and do the math to figure out how much money needs to be set aside in order to achieve the advertised pension payout.
Who is that "person" in most cases, and why was their math so off? The math must have been very optimistic on the ability of the pension funds to compound wealth.
And so the facetious answer to your remark would be "things would have played out much better for these governments if the person doing the math was more realistic about expected returns." Not sure how realistic that goal is in itself.
These are all guesses based on assumptions, of course, and no one knows the future 5, 10, 20, 30+ years from now. But as an idea of how corrupted taxpayer funded pensions are, the US government requires all non taxpayer funded pensions to calculate the liabilities using yields from highly rated corporate bonds, i.e. a conservative, safe investment class.
However, the US government exempted taxpayer funded pensions from any oversight, and so they can use whatever discount rate they want. For example, private companies have to use ~4% for their discount rate, whereas governments use ~8%+ for their discount rate.
But that's just small pickles. The big problem is there is no enforcement of even the liberal actuarial recommendations that the pension fund pays for. IL/NJ/CT/and other trouble governments simply skip contributions, i.e. don't set any money aside for the future, and that's the main reason they are in this situation. A decade or two ago, the senior union officials on the pension board didn't care about the skipped contribution payments to make a sufficiently big deal out of it, since they were going to get paid in the short term anyway. And they negotiated ridiculous pension benefits which are never seen in the private sector, such as final average pay formulas.
A typical pension formula is years of service * 1% * salary over 30 years (with a cap). That's referred to as a 1% plan, some companies might do 2%, maybe even 3%.
But in the government, you have formulas like years of service3%final average pay for the last year, or 3 years, or 5 years. That is why you see cops and firefighters working 100 hours a week when they're about to retire in their 40s and 50s, so they can secure $100k+ per year defined benefit pensions. You would NEVER see that in the private sector, as that's a laughably unaffordable benefit.
On top of which, police and firefighters in some lavish plans get to retire in 20 years, so if they start at 18 to 22, they're retiring at 38 to 42, and getting paid $100k per year for 40+ years. That's an annuity worth millions of dollars.
I can say the same about cities borrowing money to finance infrastructure projects, but I've yet to see a political comment grousing about how a city's budget woes come solely from billions of dollars of 10-year old debt that has to be serviced.
King county just voted to take on 1.7 billion dollars in debt to renovate a county-owned hospital. Ten years from now, nobody will be talking about defaulting on it, but I fully expect them to be talking about defaulting on pensions.
The cost of deferred compensation can be wildly understated for decades (and continues to be) by using erroneous investment return and mortality rate assumptions. Also, the risk of corruption remains for decades as you have a huge pot of money which many are fighting to get a piece of with little transparency.
No one actually considers the figures put out by IL/NJ/CT/Chicago and other distressed governments as accurate, and if they had to abide by the rules that non taxpayer funded entities have to, their debt would easily be 30%+ higher than stated (based on an assumption of a 1% change in discount rate moving liabilities ~15%).
I agree that politicians can also hide debt by not properly accounting for infrastructure and long term maintenance costs, and that is also a big problem.
The incentives to game the system are just too strong. Whether incorrect discount rates, systematic underfunding, whatever, people always treat the pension assets as a "big pot of money" for today's emergency, and use it for the pet project du jour.
I even see this at my condo association. We have a replacement fund to stay on top of long-term replacement liability. We can't even balance that. What chance does a large government, with many stakeholders, have of getting this right?
As a side note, defined benefit pensions don't have a place in the world anymore. It's the same thing as putting your money in a target date retirement fund from Vanguard/Schwab/Fidelity, except you also have to pay all those actuaries and pension fund managers so the expenses are higher.
Their purpose has been automated out of existence, but only exists due to politics in the government sector.