Tuesday, January 13, 2009
When Generations Clash
Before the stock market crash, state and local pensions nationwide were already severley underfunded. In many cases this was a result of overly generous pension promises in the first place (consider the New York Metro strike from a couple years ago). It will be interesting to see how this pans out. Places like New York, California, and New Jersey, have absurdly generous pension plans, you can join the police department or fire department work for 20 years and retire and collect 60% of your highest salary. Granted, this is a great deal for public sector workers but residents of such jurisdictions will probably chafe at the notion that they will be paying ever higher taxes and an ungodly portion of those taxes will be going to people who are no longer providing services. I anticipate in some jurisdictions you will see situations where residents are paying a higher share of their taxes on current pensioners than education. Such a situation is untenable. I think this will ultimately result in a wave of municipal bankruptcies throughout the next decade.