“War” and “pensions” are conceptually about as different as it’s possible to be. But – in a measure of how far into Crazy Town we’ve wandered – they’re both taking the world in the same direction.
If a Middle East (or Asian!) war doesn’t spike oil prices and push the global economy into recession, then pensions will probably produce the same end result. Here’s an excerpt from a much longer New York Times article that should be read in its entirety for a sense of what public finance has become:
A public university president in Oregon gives new meaning to the idea of a pensioner.
Joseph Robertson, an eye surgeon who retired as head of the Oregon Health & Science University last fall, receives the state’s largest government pension.
It is $76,111.
That is considerably more than the average Oregon family earns in a year.
Oregon — like many other states and cities, including New Jersey, Kentucky and Connecticut — is caught in a fiscal squeeze of its own making. Its economy is growing, but the cost of its state-run pension system is growing faster. More government workers are retiring, including more than 2,000, like Dr. Robertson, who get pensions exceeding $100,000 a year.
The state is not the most profligate pension payer in America, but its spiraling costs are notable in part because Oregon enjoys a reputation for fiscal discipline. Its experience shows how faulty financial decisions by states can eventually swamp local communities.
Oregon’s costs are inflated by the way in which it calculates pension benefits for public employees. Some of the pensions include income that employees earned on the side. Other retirees benefit from long-ago stock market rallies that inflated the current value of their payouts.
For example, the pension for Mike Bellotti, the University of Oregon’s head football coach from 1995 to 2008, includes not just his salary but also money from licensing deals and endorsements that the Ducks’ athletic program generated. Mr. Bellotti’s pension is more than $46,000 a month.
The bill is borne by taxpayers. Oregon’s Public Employees Retirement System has told cities, counties, school districts and other local entities to contribute more to keep the system afloat. They can neither negotiate nor raise local taxes fast enough to keep up. As a result, pensions are crowding out other spending. Essential services are slashed.
“You get to the point where you can no longer do more with less — you just have to do less with less,” said Nathan Cherpeski, the manager of Klamath Falls, a city of about 21,000 in south-central Oregon.
Klamath Falls’s most recent biennial bill from the pension system, known as PERS, was $600,000 more than the one before. PERS has warned that the bills will keep rising. Mr. Cherpeski has had to cut back on repairing streets and bridges.
Oregon is a blue state, but in its restive red hinterlands, tax increases are politically off limits and financial distress has been severe since 1994, when logging was curtailed to save an endangered owl. Lately, things have been getting even worse.
When a man was reported yelling and firing his gun on the property of a school in rural Josephine County, it took two hours for a sheriff’s deputy to arrive, said Kate Dwyer, chairwoman of the board for the Three Rivers School District.
The county has cut sheriff patrols, closed its mental health department and kept its jail at less than half capacity because of a lack of guards.
Dave Valenzuela, the Three Rivers school superintendent, traces the latest woes directly to PERS. The system is run at the state level, but it is bankrolled in large part by obligatory contributions from local governments.
This year, Three Rivers was poised to receive its first increase in state education funding in years, a reflection of growing enrollment. But Oregon raised by more than 50 percent the amount that Three Rivers had to contribute to PERS. So Mr. Valenzuela had to lop five days off the school year, ask each school to cut its budget by 10 percent and lay off the district librarian and English specialist.
PERS sets the pension bill for each entity — local government, university system and the like — based on the pay and demographics of its workers. Just about everyone’s bills are getting bigger.
That includes the state, by far the system’s biggest contributor.
Oregon now has fewer police officers than in 1970, is losing foster-care workers at an alarming rate and has allowed earthquake and tsunami preparations to lapse. A 2016 survey turned up “a large number of bridges with critical and near-critical conditions” because of “longstanding inadequate funding.”
Even prosperous communities are being pinched. The Beaverton School District, outside Portland, had to get rid of 75 teachers last year when its mandatory pension contribution rose by $14 million. That was after shedding 340 teachers in 2012.
“I have town hall meetings, and the parents are just confounded by this,” said Mark Hass, a Democratic state senator from Beaverton.
A Golden Touch
Oregon’s unusual method for calculating pensions tends to generate lavish payouts.
For decades, PERS calculated pensions two different ways, and retirees could choose whichever produced the bigger numbers.
The first way was similar to what most states do, basing pensions on each worker’s final salary and years of service. But Oregon’s lawmakers included a golden touch, redefining “salary” to include remuneration from any source.
That was how Mr. Bellotti, the former football coach, came to be the state’s third-highest-paid pensioner, at roughly $559,000 a year.
How could something like this happen? Easy. Give humans a chance to game the system and we’ll take it every time. Public sector unions were allowed to capture the process by which state and local governments set pension terms, and politicians went along because higher pensions move current costs into the future, when someone else has to deal with them.
Put more simply, politicians and public sector unions changed the rules to enrich themselves, and got away with it for a whole generation. But now those bills are coming due and they still don’t seem to care. They’ve been “promised” insane amounts of money and by god they’re going to get it even if it means paralyzing crucial public services and bankrupting taxpayers.
If this sounds eerily reminiscent of the attitude the big banks displayed in the 2000s when they paid out record bonuses the year after getting a multi-trillion dollar taxpayer bailout, that’s because it’s basically the same aspect of our character playing out on different scales. Human nature as a fractal.
What happens next is also predictable: A growing number of pension plans will blow up as states and cities run out of cash, and the resulting chaos will lead the federal government to bail them out with another five-or-so trillion dollars of taxpayer money. Only this time around – with debt at every level of society twice or more as high as when the banks got their bailout — the result, especially in the currency markets, might be a lot less reassuring.