Tuesday, February 17, 2009

Scapegoating of Public Employees Continues

A scapegoat is defined as a person or group made to bear the blame for others or suffer in their place. That's right, scapegoat. It's a strong word, but if you don't think that public employees are being demonized because of their benefits, you have been living in a bunker. The vitriol being thrown at public employees is everywhere. It starts right at the top with our inept Governor and follows through to newspapers, talk radio and now another biased study from the Rhode Island Public Expenditure Council (RIPEC).

As discussed in the Providence Journal yesterday, RIPEC has concluded that major changes are needed in the RI pension plan. I'm not opposed to changes, I'm opposed to the main conclusions that the plan needs to move from the defined-benefit plan to a defined-contribution plan. You can define contributions all you want, but I know that the only folks that will be required to contribute will be the public employees. Government will always play with their contributions to balance budgets. Why do you think the pension plan has problems now? Public employees have not missed a contribution.

Let me throw some things out and understand that I'm just going to be talking about the state employee side of the equation. State employees currently cost the state somewhere between $1.3 - $1.5 billion each year (salary, health, pensions and other fringe). The state's budget is approximately $7 billion. The cost of running the employee portion of our state is approximately 20% of the entire budget. This year, employees contributed approximately $90 million to the pension fund and the state matched with $133 million according to the RIPEC study. Now the state's share is more than dollar for dollar, but this is only because they have been stealing from the system to balance budgets for years. Is this the fault of the employees?

If dollar for dollar contributions were made every year, the state would be saving $43 million in this year's budget, the system would be sound and cost-averaging principles would be at work in the system. It's probably a good thing that the state is forced to overpay now because the stock market is so low (buy low, sell high).

The $133 million in state payment to the fund is around 1.9% of the entire state budget. If you roll in the cost of teachers, this grows to approximately 3.2% of the state's budget. Do you brickbats think that the state's fiscal crisis will be solved by attacking a budget area that is so tiny? Really, 3.2% is like the average family turning off the lights to save electricity.

Of course the Governor wants the state to go one step further and evolve into a 401K system for employees. This is so his cronies that work for the state a few years can get some kind of interest on their forced contributions. There is no dedication to public service here. Carcieri's folks have no intention of making public service a career. Hell, there's no money in it. And, imagine what state we would be in if there were no pension plan. The pension plan is a state asset that is a powerful economic tool if managed appropriately.

Do private workforce employees feel that when an employer matches their 401k money, that the money is all theirs? Yes, because it is. If the state matches employees dollar for dollar, is it the employees? What I'm trying to say is that the pension system is not taxpayer money. Maybe it's taxpayer money once removed, but the pension system belongs to the employees just like your 401K and the state employees earned it.

Also, in a study of states the U.S. Census Bureau reported in 2003 that Rhode Island ranked 21 nationwide in state employees per capita, the lowest by far in New England. I'm sure with the recent cuts to the ranks, Rhode Island has slipped further. We are not overwhelmed with state employees, in fact the opposite may be true.

State employees do have a healthy retirement, especially because they pay into Social Security in addition to the state retirement system. Yes they can retire and maintain a comparable income if they put in the time. This is great for the state because most will retire here. If you reduce their retirement, many more will move to states without an income tax and Rhode Island will be paying out but not taking in. This is the future that RIPEC proposes.

Stop scapegoating the public workforce. You will never solve the state's money problems here.

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