Take a look around your community: Roads are crumbling. Public parks in disrepair. Ambulance and police dispatch services take longer to arrive. Citizen services are being cut. Yet virtually every city, county, and state in the country spent the last decade raising taxes every year.
So why don’t those annual dips into your wallet ever seem to stem the tide? The answer is the worst kept secret in government today: Public pension systems are insolvent because politicians made promises they can’t keep, and taxpayers are the ones left holding the bag.
According to the Pew Charitable Trusts, only eight states have at least a 90% funded pension system, whereas 24 states are less than 70% funded. At the county or city level, the problem is even worse. In Phoenix, our past-due pension obligations are now costing taxpayers more than $250 million a year — an increase of more than 300% in less than a decade. This adds up to $5.7B in unfunded pension promises or $8,730 to $10,730 per household.
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According to Rich States, Poor States, Arizona ranks next to last in ratio of public full-time employees per 10,000 residents. That’s why the system will only get worse. To compensate, municipalities employ a two-step approach of reducing the quality and quantity of services and working with local politicians to increase taxes or fees, even during a time of record tax revenues and a red-hot stock market.
Not so shockingly, the people you’ve elected to solve big problems have kicked the can down the road so long and so far, it’s difficult to to find out just how much they, or more to the point, you, actually owe.
Even worse, whenever you read about government struggling with pension debt, the numbers attached have been massaged. Pension deficits are calculated based on a predicted rate of return — money the pension fund is projected to earn on investments each year — and other factors. Instead of calculating honestly based on historical earnings and comprehensive actuarial tables, it’s a negotiated compromise between the politicians and the pension fund boards, typically made up of government-union representatives and their appointees.
This allows local governments to continue to spend money they don’t have. By projecting an unrealistic rate of return and assuming pensioners will pass away long before they do, the result is that every single year the problem gets worse while politicians desperately cling to their blindfolds.
It’s time for the blinders to come off and taxpayers demand responsible budgeting. What will this look like? In Phoenix, Proposition 106 will:
- Require governments to use standard GAAP accounting practices, so they can no longer hide their debts from the public.
- Eliminate pensions for politicians as a first step to reining in out of control costs.
- Require any surplus tax dollars over and above current spending levels be spent to pay down pension deficits and keep our promises to retirees.
- Limit growth of the general fund budget to inflation plus population growth, allowing local leaders to maintain financial flexibility and focus squarely on the fiscal elephant in the room.
Elected officials are seldom willing to take responsibility for the mess they’ve made. But the longer they wait, the more blame they’ll receive for the coming catastrophe and the more pain there will be for the taxpayers stuck with the bill.
The transition from a Ponzi scheme to a fiscally responsible system won’t just occur overnight. Different municipalities can debate the length of transition or certain public safety spending to ensure the public isn’t put at risk. The riskiest outcome, however, is the one they are pursuing at the moment, with no apparent end in sight. Voters will change this on August 27.
Chuck Warren is Co-Chair of Citizens for Responsible Budgets, a Phoenix-based initiative effort. Sal DiCiccio represents District 6 in the Phoenix City Council.