Education Funding

State Pension Woes: Not as Bad as They Seem?

By Sean Cavanagh — April 11, 2011 2 min read
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Demanding that teachers and other public workers pay more for pension benefits might score elected officials some easy political points, but it won’t fix states’ budget woes, argues the author of a recent essay.

The source of that opinion might surprise you. It was written by Eli Lehrer, the vice president of of the Heartland Institute, a conservative think tank. A lot of the efforts today to require higher pension contributions of workers, though not all, are being pushed by Republican governors and lawmakers.

Lehrer, in an essay written late last month (I’m only getting to it now) looks at efforts in Illinois and other states and concludes that many of the fears of pension-related budget calamities—and the supposed benefits of reducing the generosity of those systems—are overstated.

Despite fears about the yearly costs and unfunded liabilities of pension systems, he notes, those retirement systems make up a relatively small share of state spending—2.9 percent of expenditures, by one estimate.

And the legal and constitutional barriers to changing pensions for current retirees and vested enrollees means that state officials are usually forced to target future enrollees’ benefits—which, in turn, means the cost savings are more modest, Lehrer says.

In most states, pension costs have little do with states’ ongoing economic troubles, he notes. Even in California, a state with what Lehrer calls “absurdly generous” benefits, public officials could cover liabilities with a mix of economic growth, tax increases and service cuts, were it not coping with other, unrelated budget headaches.

“Pensions, in short, aren’t the main cause of state budget problems,” Lehrer writes, “and many political leaders trying to bring public sector compensation down ought to focus their attention elsewhere.”

Like where, exactly? Lehrer says states should look to cut the cost of pricey, “Cadillac” health care plans for public workers, and trim their salaries. In both cases, he says, the savings would be more immediate.

Lehrer’s views have been echoed by others, including the folks at the Center on Budget and Policy Priorities, which advocates for middle and low-income individuals.

For a counter-view on pensions, see the response to Lehrer by Illinois House Minority Leader Tom Cross, a Republican.

Cross concedes that the state’s pension changes will bring more long-term savings than short-term ones. But he says reducing pension costs is necessary, nonetheless, and will bring down unfunded liabilities.

“While I can’t speak for other states, I can tell you that [Lehrer’s] theories are not applicable to the situation facing Illinois,” Cross writes. “Our problems are truly catastrophic.”

A version of this news article first appeared in the State EdWatch blog.