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PA School Employee Pension Costs Sock Taxpayers

January 3, 2006 |

While outdated and bloated business models run in the private sector hit the inevitable wall of economic gravity that forces them to face reality, such is not the case with government related pensions. One need only read about the PA School Employee Retirement System’s (PASERS) burgeoning problems to see this in action.

In contrast, private sector GM (and Delphi) union employees are paying for the sins of their Union bosses, and the deals they made with GM management long ago retired. What you had with GM was a belief that the good times would always last for the U.S. auto industry (which post WWII faced little competition thanks to a combination of foreign production being destroyed, and then, later, industry specific protectionism), and an even more ridiculous philosophy that organized labor’s needs can come ahead of those of consumers.

There is a saying, that you should always be careful what you ask for. Auto union members and their leaders should have heeded this caution. Instead, unions demanded more and more egregiously generous benefits, while GM management gave as much rope as the unions wanted, which they used to hang themselves in the long run. Of course, there is also the stock holder who will suffer as well. Meanwhile, most of the management that allowed those deals retired long ago on management related pensions.

So, today, retirees of GM are dealing with the repercussions of that ticking time-bomb; workers are faced with pension and health benefit cuts that were inevitable in a competitive world where consumers are free to pick the best product at the best price. Short of Congress stepping in and passing laws that force U.S. consumers to buy their cars, GM is facing the very real possibility of bankruptcy.

It may sound harsh, but those ramifications are merely the indifferent laws of economic gravity working as they always will. In other words, no matter how hard humans may try to invent one, these laws will simply not allow for the existence of the free lunch that GM and its Unions were trying to serve up. Eventually, the tab for the free lunch caught up with them, and those still on the system will pay for it and suffer the consequences. (Granted, so too will the taxpayer who will bail out a portion of any pension default.)

On the other hand, when it comes to government, rules that ultimately force economic efficiency don’t seem to apply. Unlike the private sector where, in the end, consumers simply have the choice to walk away (again, so long as Congress doesn’t pass laws otherwise) and purchase a better and cheaper product from elsewhere, taxpayers are on a very short leash. Hence, when the PASERS looks bloated and insolvent — short some $220 million - it’s board members simply vote to have the contribution rate of school districts’ increased — which it will be by 38% in 2006-07. As the PG notes, that’s $220 million more on the backs of taxpayers.

Now, given the exorbitant cost to quality ratio of most government (a.k.a. “public”) school systems, an ordinary consumer in any other sector faced with a fat bill would simply shop around of a better bang for the same buck, or at a lower cost. That’s usually what free markets deliver — a constant drive towards better products at a lower price, to benefit consumers — at least when the government doesn’t legislatively create some kind of monopoly to eliminate this natural efficiency of competition.

Instead, government schools have a monopoly — one that permits them to have first dibs on education resources in the form of school taxes. If someone wants to get their kid a better education, they are faced with the unattractive choices of coming up with extra cash to pay for private school, or packing up and moving to a different governments school district. It should then come as no surprise that your worst government schools (high cost / low quality) are in areas where citizens have the least mobility, while the best are in wealthier school districts, and the rest line up in between. Of course, if someone is willing to throw around some cash, many private schools can deliver an even better customized product than most, if not all government schools.

But back to the PA pension system for education employees: it’s issues are symptomatic of a greater problem with the government employee sector. Powerful union interests with tremendous political influence have found the perfect parasite-host relationship. In cahoots with politicians and in exchange for votes, they will always survive and grow more bloated so long as their host-victim taxpayers have cash in their pockets, and a voting majority can be rallied to force those taxpayers to fund this corrupt and inefficient system through what is nothing more than legalized plunder. (And, if taxpayers resist, their children and grandchildren are saddled with debt.)

Much like a protection racket, even citizens without any children to educate are told that diverting $ Billions to government education is for our own good, for without being forced to used government schools, society as we know it would come to an end. (Well - on that they are partially right: it would change for the better!)

With all that in mind, we should remind readers that, still, this arrangement government unions enjoy will in the long run face the music. Economic gravity will not be denied. This will grow more bloated for only so long before it will crush everything around it under its own weight. Then and only then will meaningful reform begin. Until then, it will search for new host victims as a source of additional revenue rather than face the reality of cuts. Such is the case currently with the City of Pittsburgh and its newly installed Mayor, Bob O’Conner.


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