The pension crisis and the coming financial storm

If a member of the private sector who owns a business wishes to remain in business they must succeed at running a profitable venture. Without good accounting and a good profit margin they would be forced to shut down operations and in some cases file for bankruptcy. In the real world failure is very real consequence of mismanagement and non-profitability. If your product or service is needed by others another person will fill the need as the market demands.

In the private sector good business principles will determine your success or failure.

In the public sector things do not operate based on these principles. When poor accounting and bad management leads to shortfalls and deficits they do not close up shop or go bankrupt…they simply raise taxes. There are no profit/loss statements; no measure of value in production; there is only the quality of service that the public receives in comparison to a burden of taxation acceptable to the general population.

This is where public sector unions come into play. Under contract the state is bound to abide by the employee salaries and benefits that are reached through arbitration. Collectively, we are all bound to these agreements to pay the agreed benefits and salaries our elected officials sign off on.

The problem arises when our public funds are mismanaged and a shortfall appears on the horizon. Because we are bound by the union contracts, costs cannot be cut and rather than reduce costs where they would be most effective by adjusting salaries and benefits we are forced to accept more painful cuts in programs and valuable educational assets.

In Pennsylvania, we are quickly approaching a deficit in our teachers pension program that will increase costs astronomically. Due to underfunding and unsustainable benefits the Public School Employees’ Retirement System will require a massive increase in employer contributions over the next 3-5 years.

Projections from the Dept. of Education show that without large amounts of alternative funding a substantial increase in local taxes will be required to offset the deferred maintenance. To put this in perspective, the previous years employer contribution rate of 4.78% has been increased to 8.65% and the projected rate increase is 32.09% by 2014.

The residents of my own local school district have endured three years of tax increases totaling an average of 4.31%; if measures are not taken to cut rather than defer costs then we will be facing an even greater series of tax increases that will dwarf what we have seen across the state.

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One Response to The pension crisis and the coming financial storm

  1. Bill Tsafa says:

    My feeling is that raising taxes to support any government program is like feeding wild animals. They come back for more and then attack you when you don’t feed them.

    My solution to state budget problems is to cut taxes even more and force government to make due with even less.

    The attitude of all government programs is that they have to spend their entire budget or face budget cuts the following year. Government agencies have all the incentive to spend their entire budget and use that as proof that they need more money the following year.

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