The Pension Heist: How politicians raid retirement funds to enrich their corporate masters
Let's say that as a condition of your employment, your company agreed to pay you a set retirement benefit from its retirement fund, with the implied understanding that the company would make the necessary annual contributions to keep that fund solvent. How would you feel when you later discovered your employer wasn't actually making those annual contributions? Instead there is a severe cash shortfall. More specifically, how would you feel if your employer cited that shortfall - the one it created - as justification to slash your retirement benefits -- the ones you were originally promised?
If executives pled poverty to justify their failure to make the contributions, perhaps you might forgive them. But what if you found out they weren't actually saving the money they were supposed to be setting aside for your retirement? What if you found out that those poverty-pleading executives were instead handing your retirement money over to their cronies? Would you be angry?
Of course you would be. So you will surely understand why a whole lot of workers will be enraged if they read a damning new study by the nonpartisan Good Jobs First. It buttresses earlier reporting by myself and Rolling Stone’s Matt Taibbi about pension funds being raided to finance lucrative subsidies to the richest of the rich.
In the cases documented by Good Jobs First, the employers are the politicians who run state governments, and the employees are teachers, firefighters, police officers, and other public workers. Over the years, the politicians have been violating the spirit of contracts with their employees by refusing to make the necessary contributions to their employees' retirement funds.* They have justified this fiscal irresponsibility by suggesting that state and local governments are so strapped for cash that there are no resources available to make the required pension contributions.
But that's where the Good Jobs First report comes in. Looking at 10 states that have considered pension benefit cuts, the analysis shows that politicians aren’t saving the money they should be putting into retirement systems, they are not investing it in core state services, and they most certainly are not behaving as if their states are strapped for cash. Instead, in many of the states that haven't been consistently making their actuarially required contributions to pension plans, politicians are taking money that should be going to retirees and instead spending the cash on subsidies to the same corporate class that disproportionately funds politicians' election campaigns. Indeed, as the report shows, "In all 10 states, the total annual cost of corporate subsidies, tax breaks and loopholes exceeds the total current annual pension costs for the main public pension plans administered by the states."
The specific examples illustrate the bait and switch:
In Louisiana, for example, politicians claim the annual $348 million pension contribution the state should be making is unaffordable. They then cite this assumption to call for cuts to public workers' guaranteed retirement income. Yet, at the same time, those same politicians support corporate welfare in the form of subsidies, tax breaks, and loopholes that cost the state five times that amount every single year.
Same thing in Florida, where lawmakers at once insist the $905 million annual pension contribution is unaffordable, all while they spend four times that much on subsidies, tax breaks, and loopholes to corporations.
In Illinois, Democratic Gov. Pat Quinn just signed legislation to slash state workers’ pension benefits even though the state spends $500 million more every year on corporate subsidies than it needed to contribute to its pension system. In recent years, those subsidies have included everything from a $275 million giveaway to Sears to a $117 million handout to Google. Meanwhile in Chicago, Democratic Mayor Rahm Emanuel is expected to propose similar cuts to municipal employees’ retirement benefits. Yet Emanuel, fresh off pleading poverty to shutter schools, is championing a $300 million spending spree on corporate subsidies, including a massive giveaway to a private university for the construction of a basketball arena. That's just one part of his city's notorious and burgeoning "shadow budget," the mayor's secret slush fund of taxpayer money designated for corporate subsidies.
Likewise in New Jersey (which was not studied by Good Jobs First), Gov. Chris Christie (R) has positioned himself as a national crusader against public pensions. As I reported in USA Today, he refused to make the actuarially necessary pension fund contribution, then pointed to the shortfall and general budget pressures as the reason to slash his state workers’ pensions. Yet, while claiming New Jersey (one of the wealthiest states in America) somehow had no money to meet its obligations to public-sector workers, Christie was doling out a record $1.5 billion in special tax breaks to large corporations. Worse, at the same time he was saying the state couldn't afford to fund its pension system, his administration was also insisting there was plenty of money to enact new income tax cuts that disproportionately benefit the rich.
Put all the data together, and it becomes clear that many politicians claiming pensions are bankrupting their communities are really saying something quite different. They are saying that pensions benefits must be cut so that there’s enough money around to keep financing the far-more-expensive corporate subsidies. In the process, they are engineering a massive wealth transfer from middle-class public employees to wealthy private corporations.
To be sure, the proponents of these moves insist that they are motivated purely by a desire to create jobs and strengthen local economies. But, as previously reported here at Pando, those talking points are belied by macroeconomic facts.
We know, for instance, that spending money on pensions is a tried and true way to successfully support a local economy:
As the National Institute on Retirement Security reports, 'For each dollar paid out in pension benefits, $2.36 in total economic output was supported (and) for every dollar contributed by taxpayers to state and local pension funds, $11.45 in total output is supported in the national economy.'
Such benefits are at least as effective a tool of local economic development as any corporate handout. After all, as the National Conference of State Legislatures documents, 'More than 90 percent retire in the same jurisdiction where they worked,' which means that 'over $175 billion in annual benefit distributions from pension trusts are a critical source of economic stimulus to communities (and) act as an economic stabilizer in difficult financial times.' We also know that spending money on corporate subsidies is often a risky investment, often a wasteful boondoggle:
When it comes to data storage, for example, behemoths like Apple, Google, Facebook, and Verizon (among others) have secured massive taxpayer subsidies from states and municipalities on the promise that new server farms will generate jobs and boost local economies. Yet, there is mounting evidence that these subsidies do not meet those promises. Likewise, when it comes to software developers and online services, ballooning taxpayer subsidies are all the rage, even though many of the attendant promises of job growth and economic stimulus haven’t been met.
Of course, those are just two prominent and well-documented examples that we know about — but there’s an entire universe of corporate subsidies that happen in an information vacuum. As the New York Times reports, many governments do not even know if the subsidies they enacted were 'worth it, because they rarely track how many jobs are created.' The Times adds that 'even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.' Taken together, the numbers prove that if politicians really wanted to support their local economies, they would be reducing corporate subsidies and plowing money into pension benefits. But they are doing exactly the opposite, which exposes their true objectives. They aren't motivated by some earnest desire for pragmatic legislation. They are pro-subsidy politicians who claim to be devout fiscal conservatives but really aren't. This is about corporatist ideology and a desire by government officials to enrich a corporate class that disproportionately funds election campaigns.
We've seen this scheme most famously in Washington, where lawmakers award lucrative congressional earmarks to their campaign contributors. There, at least, the corruption is so brazen it is almost undeniable. At the state and local level, the scheme is better camouflaged -- it is hidden by a seemingly esoteric debate over actuarial data and by euphemisms like "austerity," "belt-tightening," "fiscal conservatism," and "reform." But when you peel back the veneer, as Good Jobs First has in its report, you see what the pension debate really is: just another heist masquerading as public policy.
* You may be wondering how lawmakers can just ignore the spirit of state employee contracts. The answer is that public-sector contracts typically guarantee set benefits, but do not stipulate how those benefits must be financed. Thus, as long as the retirement benefits are being paid out in a given year, governors and legislators are able under many contracts to simply skip the annual pension contributions. Incredibly, they are able to do this even when actuaries say those annual contributions are necessary to keep their state/local retirement funds solvent over the long haul.
Image via Wikimedia.