The San Diego County Taxpayers Association has released a new report showing that the increased city pension costs across the county are resulting in increased taxes.
The report provides a good summary of the various pension plans and obligations distributed amongst the county’s 17 municipalities. The report is also thick with suggestions to cut pension costs. The only thing the report lacks is empirical proof of its basic thesis: that pension costs are driving tax increases in specific instances. In other words, the report is long on supposition but short on validation.
But man, is it long on recommendations.
The SDCTA’s argument is essentially reducible to the claim that, because pension costs impact cities’ finances and some cities have raised sales taxes, pension costs are the causal factor. Now, I do not doubt that the SDCTA is right in its basic conclusion that pension costs are a contributing factor in a number of cities increasing sales taxes in recent years. But pension costs are just that: a contributing factor. Declining property tax revenues, Sacramento revenue clawbacks, increased operational costs—like health-care benefits—and increased spending mandates are also contributing factors. The report does not state just how big an impact pension pressures have had on tax hike decisions. Indeed, the report provides no empirical statistical evidence in support of the initial hypothesis except a simple association: Since cities have high pension costs and cities have raised taxes, the tax increases are caused by the pension costs. This may be true (again, I think, to a degree, it is). But it may be a fallacy of false causes. There isn’t a Chi Square or a Pearson’s R—let alone a Yule’s Q—worth of real numbers in the report to validate what is left as ultimately a subjective analysis, let alone justify the sweeping changes to municipal pension plans the SDCTA offers as remedy.
The SDCTA initially argues in the report that pension plans need be reformed because they are leading to higher taxes (again, a claim unsubstantiated). However, the bulk of the report’s recommendations focus not on a fiscal-efficacy argument but, instead, on a fairness argument which the purported analysis did not address. Stripped of its fiscal-impact component, SDCTA’s argument for pension reform is reducible to this:
It’s unfair that municipal-worker pensions are better than those of most private-sector workers, therefore the defined-benefit plans most municipal workers have should be replaced with the defined-contribution plans (401k) that most private workers have.
Oh, really? One could just as easily reverse the argument saying it’s unfair that municipal-worker pensions are better than those of most private-sector workers, therefore the defined contribution plans (401k) that most private workers have should be replaced with the defined-benefit plans most municipal workers have.
Why punish municipal workers by taking away the pension plans they were promised—and worked faithfully in exchange for? Why not improve the retirement plans most private employees have, instead?
Oh, right. We used to do that, back in the days when labor-union membership was stronger, government regulations were tighter and American workers of all stripes—blue collar or white, labor or management—fresh from ending a depression and winning a world war demanded of their employers and government that they be treated with a little (cue Aretha Franklin) R*E*S*P*E*C*T. The American post-war social compact was clear: If American workers work hard, they will, in cooperation with the companies they labor for and the government they vote for, achieve the security of retirement. As a result, more and more workers were protected not only by the safety net of Social Security, but by the guarantee of defined-benefit private retirement plans.
Geez, they were such Mad Men back then.
Over the last generation, corporations (and I’m not bashing them—corporate owners and managers simply did what society and government allowed them to do, so we are all in this together, Mr. Moore), freed of government regulation and the post-war sense of public obligation, shed their defined-benefit plans even faster than they shed American workers. Now the only real vestige of the past golden age of guaranteed retirement is, for the most part, government workers. No wonder business and capital groups across America would like to see such municipal plans go away: Once defined-benefit plans are banished everywhere in the realm even the concept of them will Orwellianly disappear from the public discourse.
And by the way, one of my beefs about the SDCTA is that it is, ultimately, much more of a business/capital group than a worker/labor group, even though workers—including labor union members—pay a fair hunk of taxes. Of course, wealthy people pay far more in terms of most taxes than poorer workers do. Hmmm, now just what set of taxpayers does the SDCTA gravitate towards? The proof of the pudding is in the analyzing, as my pop the chemist used to say. The SDCTA report states:
As one typical example, the report shows that a city administrator with 30 years of service earning $75,000 at the peak of her career would receive an annual pension of $72,900 plus yearly cost of living increases. An equivalent benefit for an employee in the private sector retiring at age 60 would require an individual to have an IRA, 401k or other pension account worth more than $1.8 million.
True dat. But what should really grab attention is not that the city employee with the defined-benefit plan will get 97 percent of their base pay in retirement. The real shocker is that to get anything near that, an average worker would need squirrel away at least $15k-$30k or more a year for their entire working life to get a good pension—and then pray that they aren’t hit with a Dot.com or Wall Street Meltdown that reduces their 401k to financial road-kill just as they plan to check out.
Now, are some of the negotiated benefits city workers get too generous? Perhaps. Retirement ages, most certainly, need be looked at. (And not just for municipal workers. If life expectancy is growing, the expectation that people need work longer before retiring needs be considered for all retirement systems, including social security.) But the SDCTA report is a less a real analysis of tax policy and pension plans than a wish-list for those dedicated to the proposition that the only good defined-benefit retirement plan is a dead defined-benefit retirement plan.