Issa’s municipal pension hearing
Congressman Darrell Issa‚Äôs Committee on Oversight and Reform meet today on state and municipal debt.
The hearing was really a dressed up fight over municipal¬†pensions and collective bargaining rights.
The concern is that bond investors, worried about unknown pension liabilities, will increasingly require more yield for the risk of owning municipals. And some think a ¬†solution is to remove the current form of¬†guaranteed¬†pensions.
Many¬†public workers do not get Social Security; rather they get a¬†municipal¬†pension. This is a “defined benefit”.
Defined benefit plans are like Social Security or a fixed annuity. You and/or your employor pay into the plan for a number of years and at retirement you¬†receive¬†a monthly check for a fixed amount adjusted for the cost of living (COLA) increases.
In contrast defined contribution plans are managed by individuals and are valued by the securities held within an account. In times of stock market booms a 401k likely will increase in value. But in times of financial distress an individual account can be severely reduced. And a retirement devastated.
I spent most of last year on Capitol Hill leading an open source financial reform project, Riski. I¬†attended more House and Senate hearings than I want to remember. But I don’t ever recall seeing a partisan line being drawn so starkly as I saw today.
Chairman Issa (R-CA) opened the hearing by noting the “out of control spending and debt loads across the country. Citizens know of federal distress but they know less about the ¬†state and local crisis. States¬†and¬†local governments face a shortfall of $112 billion in tax revenue for the 2012 fiscal year. Taxpayers are exposed to $3 trillion in unfunded pension¬†liabilities. The muni bond market does not have transparent reporting”.
Ranking Member Elijah Cummings (D-MD) sailed off in another direction. “I support efforts to help states face their challenges. I have great respect for governors who work with unions and others to provide solutions. I strongly object to blaming these problems on middle class Americans. They did not cause these problems. The reckless actions of Wall Street created this crisis. Some politicians are using crisis to strip rights. We have always worked to increase rights. I would not be sitting here otherwise.
Governor Scott Walker who fought the public employees and people of¬†Wisconsin while ending collective bargaining rights tried to defend his actions to Democratic representatives.
In contrast Vermont governor Peter Shumlin talked about shared sacrifices. “We both face the same challenges. This crisis is result of the greatest recession in history. I didn’t start with changes to collective bargining and pensions. Our first problem is that health care costs have doubled. Our second cost driver is that corrections have doubled in 10 years. I go where the¬†money¬†is. There are steps you can take without undermining¬†traditional¬†defined contributions plans. We worked together. We brought unions together. We shared sacrifice. In our discussions we got more with maple sugar than vinegar.
“This was Vermont’s toughest winter in many years. I¬†went¬†out with plow truck driver who worked 12-14 hours a day at $12 an hour. He did not get us into this mess. Collective bargaining helped make the middle class stong. We can reach compromise and be fiscally responsible without taking on collective¬†bargaining.”
This drama will continue to unspool in Washington and across the country. But at least the issues are starting to be addressed.
Let us ¬†remember that the health of the common weal requires shared sacrifice. ¬†And many innovative approaches will be required to overcome these problems decades in the making.
## You can read my rough notes from the hearing.
## Photo courtesy House Oversight and Reform Committee