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Manhattan Institute's Steve Malanga: 'Our Elected Representatives Played Chicken With Pension Funds'

By    |   Thursday, 18 June 2015 11:17 AM

You can thank your elected officials at the state and local level for making a mess of the public pension system, says Steve Malanga, a senior fellow at the Manhattan Institute.

"Around the country, state and local officials have increasingly discovered over the years that they can exploit the complex and sometimes ill-defined accounting of government pension systems, as well as loopholes in their own laws governing those pensions," he writes in the Washington Examiner.

"Over time, elected officials came to promise workers politically popular new benefits without setting aside the money to pay for them, declared 'holidays' from contributions into pension systems and changed their own accounting systems midstream to make the systems seem better funded — all just ways of passing obligations on to future taxpayers."

Laws and rulings that make it difficult to reform pensions have contributed to fiscal meltdowns in places such as Detroit and Stockton, California.

The ugly results have now become apparent.

"Our elected representatives played a deceptive game of chicken with pension funds. And now the chickens have come home to roost," Malanga says.

America's states and municipalities face a $1.5 trillion pension shortfall, and possibly $4 trillion if the funds' investment returns don't match expectations, he explains.

"In places with the deepest debt, taxpayers face rising taxes and declining services, which is hardly the sort of place that a family or a business wants to call home," he says.

For example, he said that places that cannot reform pensions, or where legislators were slow to act, are inevitably seeing tax increases to finance steep obligations.

"In Pennsylvania, 164 school districts applied in 2014 to increase property taxes above the state's 2.1 percent tax cap. Every one of them listed pension costs as a reason for the higher increases. In West Virginia, the state has given cities the right to impose their own sales tax to pay for increased pension costs," he says.

Elsewhere on the retirement front, senior citizens are taking it on the chin big-time, as the Federal Reserve's low-interest policy is cutting into their fixed-income returns, right?

Not exactly, according to The New York Times.

"Most Americans suffered serious losses during and after the recession, knocked off balance by layoffs, stagnant pay and the collapse of home values. But apart from the superrich, one group’s fortunes appear to have held remarkably steady: seniors," write Times reporters Dionne Searcey and Robert Gebeloff.

"Supported by income from Social Security, pensions and investments, as well as an increasing number of paychecks from delaying retirement, older people not only weathered the economic downturn that began in 2007 but made significant gains, a New York Times analysis of government data has found."

And who among us in our golden years is faring best? Those aged 65 to 74.

"While there are plenty of individual exceptions, as a group they are better off financially than past generations and may well enjoy a more successful old age than future ones, even those merely a decade younger," Searcey and Gebeloff say.

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You can thank your elected officials at the state and local level for making a mess of the public pension system, says Steve Malanga, a senior fellow at the Manhattan Institute.
Malanga, chicken, pension, funds
Thursday, 18 June 2015 11:17 AM
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