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How to try retirement reform again to avoid coming crisis

Hopefully, it won’t take a massive crisis to get Louisiana policy-makers to realize the necessity of pension reform – but wait much longer and that imperative will force itself onto the state.

California exemplifies what happens when policy-makers ignore a pending crisis of this nature. The state and many of its political subdivisions in flush times became extremely generous to government employees with the people’s resources, creating a compensation structure that made these employees significantly better off on this account than those in the private sector paying for it. But good times don’t last forever, especially when decades of imprudent state fiscal management combine with periods of the same (such as currently) from the federal government, and now local governments are turning the spigot to ease the flow to public employees as pressure builds on California’s state government to do the same.

Louisiana isn’t yet to that point, but the situation parallels California’s and today’s present in the Bayou State reminds of the Golden State not long ago. Similarly, Louisiana’s employees are overcompensated relative to the private sector for jobs doing similar tasks. Similarly, a huge liability grows as a result that threatens to consume a large portion of future state budgets – with certainty if nothing changes as the Constitution mandates expenditures to reduce the unfunded accrued liability to zero by 2029. And the crisis might come sooner, with a predicted draining of funds to pay liabilities by 2020.

While some observers mused that Gov. Bobby Jindal’s inability to get passed legislation that would eat into the $18.9 billion UAL signified at best a mediocre session result, it must be remembered that his allies almost succeeded in getting the two measures designed to do the most in this regard to his desk, from a baseline of the year before where half-hearted attempts to do the same got nowhere. And he did get through one important measure, one that puts employees hired after Jul. 1, 2013 into a cash balance plan that may not contribute to the UAL in the future.

The problem is, this begins to “save” at the earliest only beginning Ju1. 1, 2023, does nothing to reduce the UAL until then, and may even increase it. If either (probably both) of unrealistic returns expectations or prolonged poor overall investment climate happen, this plan also may force the state into dips into taxpayers’ wallets in some years. Regardless of this new plan’s existence, the present UAL threatens to balloon further under the old that may last another half-century or even longer unless changes that ensure employees pay their fair share for relatively cushy benefits get made and those benefits are brought in line to a realistic value congruent with that observed in the private sector.

This means Jindal and his allies must try again but, more importantly, succeed. Making the task more difficult (and also reflecting how the near-miss of this year was even more remarkable for the progress made in getting that far with it) is the oversized condition of Louisiana’s and its local governments, with their relatively high per capita numbers of personnel and costs. This gives government employees disproportionate power to lobby and voting presence to pressure policy-makers to maintain their plush benefits.

Still, they must try, and now or otherwise permit a California-like crisis to engulf the state. Five tactics can help get a reform package across the goal line next year:
1.      Propose combining as many systems as possible to create efficiencies of scale. A small amount of that was done this past session, but there’s no reason for the state to have 20 different retirement programs, each with separate funds and governance mechanisms, and some badly managed. Consolidating can save some funds which then can be put to reducing the UAL and likely improve performance in the aggregate, pressuring down future increases to the UAL.
2.      Address reforms to all funds that do not serve hazardous duty personnel (the risks of their jobs entitle them to generous benefits). In a political decision to increase chances of education reform passage, Jindal did not propose changes that would apply to most members of the Teachers Retirement System of Louisiana, which led to queries about consistency and unfairness in applying changes only to some. With those reforms now in place, there won’t be distractions to detract from taking all of this system into account (and with the other big one, the Louisiana State Employees Retirement System, comprising the vast majority of the UAL) plus all others. This can piggyback onto system consolidation.
3.      Better publicize the case for reform. Almost none of the Louisiana public understands the gravy train of compensation state employees get relative to their private sector counterparts. Understandably, the Jindal Administration and its legislative allies do not want to come off as seeming to be “against” this large voting bloc, but a recitation of the facts may be the only way to persuade the wider public to pressure recalcitrant legislators (unlike in California, the state cannot fall back on an initiative procedure). Reformers need to have accomplished the first reliable and valid compensation study and publicize its results, along with other salient information about the relatively small contributions employees make, the relatively generous ones the state (that is, taxpayers) makes, the cornucopia of paid vacation days, low-cost high-value health insurance available, etc., to have the public understand the generosity involved and of the need employees to pay their fair share for such largesse.
4.      Link employee pay raises to reform. One of the final iterations of the reforms that did not pass tied the implementation of reform to reception of a pay raise to offset, and politically shrewd move to defuse objections that increasing employee contributions was a stealth pay cut in an environment where raises had not been had for most for three years. Jindal, with plenty of justification given a national economic environment that continues to put a lid on state revenues, can plan for no raise again next year unless reform gets passed, in a way that creates an immediate revenue-neutral situation for employees and moot this objection, while providing a carrot for employees to drop objections with the implicit message that no raise will be forthcoming until reform is achieved. (This also has an immediate impact on curtailing the UAL; the amount of the raises won’t have to be matched by the state.)
5.      Link reduction in the size of government to reform. In order to save bucks to offset the burgeoning UAL, Jindal credibly can call for continued lopping off of state government jobs. He can argue that if the UAL’s growth rate is curtailed through passage of reforms, the state can afford to keep more people on the payroll. Having their jobs threatened for reasons of adverse fiscal conditions might convince some opponents in the bureaucracy to sign on if that means being able to free money to save them. (And, as in the above, laying off employees limits UAL growth in the short term.)

Louisiana doesn’t need to let itself become like California. By adopting the above strategy, reformers can prevent this, given this example strengthens their resolve enough to do so.


Anonymous said...

"and with the other big one, the Louisiana State Employees Retirement System, comprising the vast majority of the UAL"

This is utterly false. Once again, you have ignored the facts to push your misguided agenda. Hold raises hostage! That's another gem of an idea from your twisted, black-hearted soul.

Just because you keep repeating lies, it doesn't make them true.

Anonymous said...

Once again, you state that Louisiana's employees are overcompensated relative to the private sector for jobs doing similar tasks. Please provide your source of this information. Show your readers and the Louisiana public that this is true.

You use the term gravy train of compensation. Where is your basis for this? Yes, some state employees make very generous salaries, such as those in the governor's cabinet and office. However, most employees do not make six figure salaries. Some work second jobs to survive. Why are you so against state retirement? Most state employees took the jobs for lower pay because they would receive a defined benefit. State employees do not pay into Social Security. Therefore, this is their only source of income in their retirement years.

You state that combining the systems will allow for reduction of the UAL. How? The debt will still be there; it will not be erased by combining the systems. Also, you need to research why there are so many systems. Some systems were created for specific types of employees and are not part of the UAL. The UAL is for the four systems the state created. The UAL is comprised on a debt the state owes these systems as well as losses sustained due to the economic roller coaster this country is currently on. Instead of taking money that should be used to pay down the system, the money goes to projects that do not benefit the state as a whole. All taxpayers, including state employees, realize there should be some sort of reform. But changing the game plan now is a break in contract, a broken promise. Why should state employees bear the cost for all?

So once again, I ask you for your sources of information. Maybe then, I will lend some credence to your writing. Until then, I will always question your agenda.

Anonymous said...

The U.S. Census Bureau reported that in 2009 the median household income in the State of Louisiana was $42,460 as compared to the average State of Louisiana Full-Time Classified Employee’s income that was $40,988. The average Full-Time State of Louisiana Classified Employee salary in 2010 is $42,187 (Department of State Civil Service 2010-2011 Annual Report). Hence classified State government employees have gotten closer to the median income of households in the State of Louisiana in 2010. However, you don’t hear about this; instead you hear about how much money government workers make compared to everyone else. Clearly, the data shows a different reality for classified State workers. I believe that media sources simple do not distinguish the difference between classified, unclassified, and politician salaries, which leads the public to draw the conclusion of the salary disparities with the average private sector workforce salary.

Anonymous said...

Contrary to what most people may believe, State employees pay into LASERS towards their own retirement benefits. Currently an employee hired before July 1, 2006 the Lasers Contribution Rate is calculated based on the 7.5% contribution rate, while an employee hired after July 1, 2006 is based on an 8.0% contribution rate. Government contribution factor should be the same, but since every government administration has deferred part of the contribution to the next fiscal year (debt), the State of Louisiana now owes 25.6%, called unfunded accrued liability (UAL). This debt payment makes up the largest part of the State’s contribution, and it is not necessary since 2% of the overall State’s budget is payments into the retirement system ( Why the current and previous administration has since 1988 deferred part of the State’s obligations it owes into the retirement system is beyond intellectual capacity.

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Anonymous said...

The above shows that you are repeating the talking points and cannot prove most the purported facts you rely on (what's new).

Remember that all these overcompensated, gravy-train people are taxpayers, too. Taxpayers without Social Security.

They are also the employees of all of the taxpayers.

You cannot really explain why the employers, the taxpayers, should not pay for the constitutionally contractually-protected benefits of its employees.

Can you?

Jon said...

I say they start by firing crack-pot professors at public universities. You moron

Patrick said...

I thank all (most) of the commentators for their well thought out statements which I agree with wholeheartedly. I am not quite as well spoken as these commentators.

My comments to Mr. Sadow are as follows:

1. Take Jindal's cock out of your mouth.
2. Insert my cock into your mouth.
3. Suck vigorously until you get the salty reward.

Fuck you

Mr. Harris Plutocrat said...

Impressive that you have more than just me commenting here, Jeff. What I'd like to share with the other readers is that this isn't a matter of convincing Jeff with facts or persuade him with morals. Jeff hates certain liberal demographics as a matter of personality. It comes out in every one of his stupid posts. For him, public policy is about vindictiveness to "teach them a lesson." This is how most conservatives have become. Anyway, w/r/t his garbage post, consider that in Jeff's world California is a hellhole and Shreveport is a bastion of riches and freedom. That's the world Jeff lives in.