Scan the news on any given day and chances are you’ll likely see one or more stories about crowd-out, or the shuffling of government money from important community services to cover escalating pension costs. As more and more public retirement plans face insolvency, policymakers tend to pull funds from important public services like education, public safety and transportation to pay down pension debt.
This week, Stanford lecturer David Crane demonstrates just how badly crowd-out is happening in California. As the state’s retirement costs surge, says Crane, there’s been a significant change in state budget allocations. But don’t just take his word for it, the proof is in the pudding (i.e. a review of the state’s 2016-17 budget). Data shows that from 2011 to the current budget, the change in share from the state’s general fund has increased 40 percent for pension and OPEB (retirement healthcare) costs, while education funding has simultaneously dwindled.
“Pension and OPEB costs are just at the beginning of their upward climbs because of fast growing liabilities and inadequate pre-funding,” says Crane. “Absent reform, California’s budgets will increasingly be a contest among retirement costs, healthcare and education.”
But it’s not just a California problem. U.S. public retirement programs are more than $1 trillion in debt, resulting in tremendous budget challenges for states and municipalities throughout the nation. Amid this crisis, state and local governments still maintain a responsibility to provide essential services, including education, that provide quality of life for all Americans. Unfortunately, as David Crane points out, these services will only continue to be reduced as public pension debt skyrockets.
While it’s easy to kick the can down the road for another day, if policymakers don’t get control of the public pension crisis now there will not be funds for priority programs in the future. It’s time that we find real solutions to the pension crisis so that taxpayers receive the services they have paid for.