Public Pensions: Three Kinds of Bad News

Thursday’s San Francisco Chronicle leads off with a story that gives me the heebie jeebies. The headline is: S.F. incurs huge costs for public retirees. The story goes on to detail just how much will have to pay—or is more-or-less obliged to pay—for public employee retiree health benefits. The answer is, believe me, a lot (link).

As the happy beneficiary of a tax-supported pension, this kind of talk makes me nervous. In sum, I can think of three different kinds of public employee retiree benefit problems, and they are all bad.

One: There are public pension funds that are just insolvent—no, strike that, that are jawdroppingly, gobsmackingly, deep-tapioca insolvent, without a prayer of ever fulfilling the obligations they pretend to acknowledge. San Diego had a recall mayoral election about this sort of thing a while back. One of the candidates asserted that he was best qualified because he was a bankruptcy lawyers (he didn’t win).

Two: There are a few public pension plans that are not insolvent at all; that are doing just fine, thank you, and have funds enough invested to cover all but the most unthinkable of contingencies. This may not sound like a problem, but if the taxpayers ever figure out how well these guys are doing, they aren’t going to be happy. And I think they may be starting to suspect.

Three: The third problem is what you might call the “worst of both worlds” problem—where public retirees are drawing their benefits out of some kind of current account, under a who-knows-what kind of obligation to keep on paying forever, and in progressively larger amounts. This is the worst of the three because this is where you are beginning to see a head-to-head confrontation between retiree benefits and current needs: call it “grandpa meets the pothole,” in the sense that if we take care of the pothole, then grandpa is not going to get what he (thought he) was promised.

“Get a good government job,” my friend Anon likes to say “and keep your nose clean.” Actually, I think it was Anon’s mother who used to say it to her children, along about the time she was telling them to wear clean underwear lest they have an accident and get hauled to the hospital. In an age of cratering private pensions, it looks like pretty good advice. But as the years go by and the demands get bigger (and the pot gets smaller), it may not look like such good advice after all. More good advice, perhaps not from Anon’s mother: be careful not to outlive your money.