Funding the Future
Good news. Florida’s in pretty good shape for funding its future promises to state government retirees - sort of. That is, funding for pensions has kept up, but funding for retiree’s health benefits is well below necessary levels. Talk about the use of credit cards (last week’s column). Pensions and retiree health benefits are credit card purchases to be paid in the future. Most states approached both those issues just like many card users have: it’s easy to spend (or, in this case, promise), but pretty difficult to meet the payments.
According to a recent study by the Pew Center on the States, Florida has a $142 billion pension liability. As of 2010 they had paid in 107 per cent of the amount needed to fund it. That’s good. The most agreed upon figure to be solvent is 82 per cent. Most states are half that and some worse. For Florida, the only problem is keeping up that level which is unsustainable because investments - interest, dividends, stock values, CDs - no longer bring the return of past years.
Anticipating that, the state tried to force employes to contribute more to the plans (some people pay nothing) and to drop the cost-of-living factors in the benefits. Oops. The courts said you can’t do that because already agreed upon contracts don’t permit it. That will undoubtedly mean tax increase or service cuts elsewhere.
In the meanwhile, the retiree health plan is funded at only 33 per cent. It has a liability of nearly $5 billion. Health care costs aren’t dropping, though they have slowed, and that means the state is going to have to fork out money from current operating revenues - more taxes or fees or cuts.
Think of it another way: every dollar put into a state, or any other government pension program, means there are fewer dollars to put into your private plan. That is, because your taxes have to pay government employes, you have to open your wallet to meet your obligations to those that govern you and you, through your representatives, have agreed to pay. So, it’s easy for those representatives to be heroes, and maybe get government union support along the way, by promising future benefits that you have to pay.
However, if you think there are problems here, take a look at other states. The 50 states (not 56, by the way) have a total pension fund liability of $757 billion and a retiree health care liability of $627 billion. For the health care liability states have set aside only 5 per cent of their liability. Thirty-four states don’t meet the 80 per cent funding level that experts say is necessary to meet their obligations. Four only have about two thirds of that.
What it all means is that state spending will be under pressure for years and years just to meet what has been promised. Not even a new, robust economy will bail them (and us) out. Promises, promises. They’ll kill you every time.