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Thirty Years and Counting

PERSPECTIVE - A report issued by the California State Auditor projected that the State Teachers Retirement System will run out of money in thirty years.

Nothing shocking about that, but this report is different from most prognostications regarding the pension crisis.

Most reports focus on the unfunded liabilities of the various public employee plans – many in the tens of billions of dollars. Quite frankly talk of billions and trillions of dollars in deficits do not faze too many people these days.  We are so numb to these astronomical amounts that we accept them and get on with our lives, despite the fact our standard of living will be adversely impacted for a long time to come if they continue to grow.

The state auditor’s report frames the problems in terms that still resonate: years.

Imagine if you were a forty-year-old teacher.  The report should give you pause.  Your retirement fund may be exhausted by the time you are seventy, with reasonable prospects of living until ninety.

Well, you say, a lot can happen in thirty years.  The US economy could do a one-eighty, and surely the taxpayers will be willing to kick in more.

While we can expect some turnaround at some point, don’t bet on a robust recovery when the economy is crying out for major restructuring – less reliance on consumer spending and housing, and more on manufacturing and exports.  Structural change can take decades considering the competition the country faces.

Taxpayers will be reluctant to pay more.  If we have learned anything in the thirty-plus years since Prop 13, voters are averse to approving tax increases for any reason.

What the teachers and other public employees must do is come to grips with reality and gradually increase their personal contributions.  In the case of the STRS, the California State Legislature must approve increases in employee contributions. Don’t expect the leaders of the teachers’ union to lobby Sacramento for this.  It is up to the rank and file to step up and seize the initiative from their selfish leaders.

The thirty-year clock is running, but may expire sooner if actual investment returns come in lower that the assumed optimistic rate  of 8%.

(Paul Hatfield is a CPA and serves as Treasurer for the Neighborhood Council Valley Village.  He blogs at Village to Village and can be reached at: [email protected] ) –cw

Tags:  California, State Auditor, US Economy, economy, taxpayers, Prop 13

Vol 9 Issue 68
Pub: Aug 26, 2011