Scott Ott writes a twice-weekly column for the Washington Examiner, is a frequent guest on CNN.com LIVE, co-hosts the popular Trifecta on PJTV.com, and is a candidate for Lehigh county executive in eastern Pennsylvania. The more I read Scott, the more impressed I am with his understanding of the issues facing our country. Today, he’s tackling an issue that will effect nearly every one of us, that nobody seems to be talking about. The financial crisis that local governments are rapidly approaching.
Why are local governments struggling? One of the biggest reasons is because of pensions being paid to government retirees. Scott isn’t talking about social security or federal employee retirements. Scott is concerned with the pensions that are being paid to retirees of state, county and city governments.
Most government workers in your state, county, and local municipality participate in a “defined-benefit” pension plan. That means that your tax dollars get used to make sure that, whatever happens in the stock market, the government employee gets a guaranteed payout at retirement.
Here’s a practical example from Lehigh County, Pennsylvania, where I’m running for county executive. Because the markets started to tank in 2008, Lehigh County taxpayers involuntarily kicked in an extra $4 million in 2009 to make sure that government retirees get their guaranteed outcome. The market got worse, so next year, taxpayers will contribute an additional $12 million to cover stock market losses in the pension fund. That amount equals more than 11 percent of the locally-raised portion of the county budget. There’s no telling how much more the fund will need in 2011, and the reserves which the county executive used to cover the losses this year will be drained dry in 2010.
Now, unless you work for the government, you probably have your retirement money in something like a 401(k) or IRA which has no such guaranteed result. You may have a “defined-contribution” plan, meaning your employer has agreed to set aside part of your compensation for retirement, shielding you from current income taxes. No one knows how much of a payout you’ll get in your sunset years.
So, when the markets are down, your retirement account gets hammered. But the government worker, who rides on your back through this financial desert, has no worries. He’ll still get what was promised him at retirement.
Is Your Local Government About to Bankrupt You?
Scott Ott writes a twice-weekly column for the Washington Examiner, is a frequent guest on CNN.com LIVE, co-hosts the popular Trifecta on PJTV.com, and is a candidate for Lehigh county executive in eastern Pennsylvania. The more I read Scott, the more impressed I am with his understanding of the issues facing our country. Today, he’s tackling an issue that will effect nearly every one of us, that nobody seems to be talking about. The financial crisis that local governments are rapidly approaching.
Why are local governments struggling? One of the biggest reasons is because of pensions being paid to government retirees. Scott isn’t talking about social security or federal employee retirements. Scott is concerned with the pensions that are being paid to retirees of state, county and city governments.
If you’ve been spending your time looking at the way things are going at the national level, read Government Pensions: The Next Major Financial Crisis today.