Out of Control Policy Blog

The seeds of a government pension debacle

Here is a great story from the Voice of San Diego, a little slice of life that underlies huge budget overuns, and deep, deep digs into taxpayer pockets.

San Diego Overpromised. Huge.

By GARY SUTTON
Voice Guest Columnist
Monday, Nov. 14, 2005

You've read about the colossal retirement bonuses, mostly going to those folks who helped write the package. They knew what they were doing. But hold on. It gets way worse.

Meet Paul.

Paul seems like a decent guy. He's the desk clerk where I work out and does a little bit of security guard duty. Paul retired after 39 years and some months from San Diego's city payroll. He worked for the parks and is 56.

"What's your pension?" I asked one day. He and I have chatted enough to make a blunt question like that OK. Almost.

"102 percent of my highest pay," he replied.

That got my attention, so he explained further, waiting a minute until the arrivals in the lobby strolled out of earshot. Paul was advised to do the buyout of future years when he retired, so he did. That made his retirement pay 98 percent of his last year. But the sweetest part of the deal is a 2-percent inflationary adjustment every year, which took Paul from 98 percent to 100 percent and he's making 102 percent currently.

"What I couldn't believe," he said, in a low voice, "was that I also receive full health benefits forever."

Lucky Paul. Sad San Diego.

Plan on fewer books in the library, more street potholes and new weeds in the schoolyards. And it's not just the fat cats at top; it's not just those millionaire public servants who stole from us. There are many tens of thousands of Pauls who never expected the windfalls our top thugs pushed through, and these workers feel both blessed and guilty. They don't even understand how huge this robbery is for them.

So I did the math for Paul. (His name remains my secret, because he's a good man, and gave me answers that our elected officials carefully evade, and is a worker who didn't ask to be part of the problem, but is.)

"Paul, you're white and 56," I said.

"Yes."

"Your mother is still alive, you've never smoked and you're not overweight."

"Yes."

"Chances are you'll live to 85," I said. He asked how I could predict that, and I explained I went through the actuarial charts, and, this could be a reasonable guess.

"So Paul, does your wife keep your pension if you pre-decease her?"

"If I what?"

"If you die first, what does she get after you're gone?"

"I never asked." I believe him. Paul is our financial backbreaker, but he didn't cause it or expect this. It was the bandits at top, the "public servants," going way back that did this to America's Finest City.

Let's take a sanguine view and do the math. Paul hesitated to give me his last salary for the city, and I was unwilling to push him on that subject. He mentioned that it was a proud moment when he passed $20 per hour. So if we assume he retired with a $22 an hour salary, receiving no overtime, and that he was paid for 2,080 hours per year, then Paul's last salary hit $45,760.

(This may be blindly optimistic. Of all the crusading reporters expressing outrage over the benefits awarded, none have dug into the reality, and discovered how retiring workers in many departments get huge overtime work in their last few years, at time and a half, to inflate their top salaries, which determines their retirement pay. The Mafia would blush. And, just like General Motors, nobody's dug into the probable future cost of encouraging workers to retire in their 50s and giving them health care for life. Wanna buy a Chevy?)

In San Diego, the median male taxpayer's salary last year was $36,984. The median female taxpayer's salary was $31,076. So our public servants aren't terribly abused. Turnover in private sector jobs run between 20 percent per year and 25 percent per year, while public payrolls see a tiny fraction of that change. The exact number "cannot be provided" by the payroll department of our city, apparently that is simply impossible to calculate, but independent evidence and anecdotal opinions from those who should know, including Paul, suggest a public employee quitting is not a daily occurrence.

Now let's say Paul's health care costs run $300 per month. This might cover Paul easily after Medicare sets in, but he's got a decade of medical expenses meanwhile that'll clearly run over this, so now we've got his annual cost at $49,360. That's today.

Assume the 2 percent per year kicks in for the next 29 years. Assume that health care bill only goes up 2 percent annually as he ages, fat chance. This escalates Paul's annual pension and health care expense up to $85,886.40 in his 29th year of retirement, just before he passes on to that city government in the sky.

So San Diego pays Paul $1,245,352.80 in future salary and health care costs.

If Paul started working for the city at $10 an hour, and got steady increases, he then worked 29 years and collected $957,000 in pay through his career, not counting health care.

Now he can coast for another 29 years, and pull in more than a million buckaroos from the rest of us.

Not shabby, eh?

His wife, by the way, will retire from the San Diego City Schools in two years, and she's got a pension coming. From you and me. Plus, in 10 years, Paul adds Social Security.

The stock market is now higher than it was a couple of city administrations ago, folks. That market dip isn't what blew up our town. We're overpaying city workers. And will for a long time.

Gary Sutton is a retired CEO. He wrote "CORPORATE CANARIES...Avoid Business Disasters with a Coal Miner's Secrets."

Adrian Moore is Vice President, Policy


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