By Andrea Castillo, JMI Intern & Florida State University Senior in Political Science & Economics
The harsh effects of this prolonged recession are starting to noticeably affect the daily operations of the public sector on both the federal and state level. Just as private sector firms were faced with the grim realities of downsizing and cost-cutting following the financial crash of 2008, government administrators and public employees alike find themselves rocked by rumors of pension reform and accountability measures on an almost daily basis.The visceral emotional responses and endless protests that were evoked in Wisconsin upon Gov. Scott Walker’s decision to require public employees to contribute 8% of their salaries into their personal pension accounts provided some sure-to-be award-winning coverage for media outlets and talking heads, but unfortunately very little discussion has been devoted to the actual substance of the governor’s policy.Florida has been fortunate to have staved off any immediate public pension crises for the time being, but it is imperative that we, as a state, take precautionary measures now–the current conditions of Florida’s public pension system are eerily similar to those of Wisconsin’s public pension system only one short year ago. If our policy-makers recognize the early warning signs of a potential problem with the public pension system in its infancy, our state can effectively prevent a Wisconsin-style crisis to the benefit of public employees and taxpayers alike.Although media outlets frequently mischaracterize the issue of pension reform as “a reduction in public sector benefits,” the real problem that states around the nation are facing has to do with the administration of pension payments instead of a net reduction in general benefits.According to a report that was published by JMI Senior Fellow Dr. Randall Holcombe earlier this year, many municipal governments in Florida are wrestling with the problem of underfunded pension liabilities. For a host of different reasons, including diminished rates of return on investments in a shaky stock market, increases in pension payouts beyond the original assumed amount, and routine changes in employees’ final salaries, these pension funds risk certain insolvency unless action is taken in the present.Instead of pointing fingers to absolve blame or simply ignoring these early warning signs in the hopes of avoiding a challenging legislative debate, Florida policymakers can make a few immediate reforms that would greatly alleviate our pension problems. Following are two of the many practical and equitable proposals that reform-minded Floridians have already brought to the table:
First, the state government can encourage municipal governments to begin offering 401k-style “defined contribution” plans to new government employees and cease to offer the “defined benefit” packages that were previously gifted to public workers.
Second, local governments that wish to continue granting the “defined benefit” packages that are currently at risk for insolvency should be encouraged to shift these plans to the state-run Florida Retirement System (FRS). Although some of the same incentives problems that currently exist on the local level will also exist on the state level with the FRS, the FRS is better positioned to withstand shocks to its assets because it is a much larger system than the pension fund for any one municipality.
When addressing this issue, it is imperative that policymakers on both sides of the spectrum maintain the decorum to leave their biases and assumptions outside of the legislative chambers and focus on implementing positive change. The nation as a whole is presently fixated on the issue of public sector spending and citizens of every state are quick to take a stance on one side of the issue or another.Given the passionate responses from this country-wide discussion, some of the popular rhetoric that has been repeated on the national level will undoubtedly be utilized in the struggle to reform Florida’s public pension system. It is my hope that Florida’s leaders will refrain from indulging in petty political posturing so that they may focus on developing a bipartisan and practical solution to a non-partisan Florida problem.