In the private sector, employees generally contribute to their own retirement in IRAs and withdraw their savings later in life. In contrast, unionized public sector employees have collectively bargained with states for fixed retirement payouts without any employee contribution. So states are on the hook to pay 100 percent of public employee pensions in addition to other retirement benefits, like health insurance.
This is the deal of a lifetime for state public employees. But when it comes time to pay for these pensions, states are in trouble. They made promises with invisible money, but have to pay with real dollars.
According to the Pew Center on the States, there is a one trillion dollar gap between the pension, health care, and other retirement benefits states have promised and the amount of money on hand to pay for these benefits. Some experts put this figure over $3 trillion. Because of this, some state treasuries may go broke.
Fear that states will turn to the federal government for a solution has filled the airways of the 24-hour news cycle. But the era of billion dollar federal bailouts is over. Congress should not take money from taxpayers in fiscally healthy states to give lavish retirement benefits to public employee unions in a handful of spendthrift states.
Since a bailout is off the table, some have called for Congress to give states the right to file for bankruptcy. But just as states are able to spend their taxpayers’ dollars, they can also reduce state spending or reform their public employee pension systems.
Allowing states to file for bankruptcy may actually discourage states from closing their budget gaps, knowing they could later restructure their debt in bankruptcy.
If your teenager goes on a spending spree with your credit card, do you simply pay off their debt? No, because they’ll do it again. You tell your teenager to get a job and pay off what they owe themselves. States are not above this same rule of personal financial responsibility.
State officials should not risk taxpayer dollars by making contractual promises to unions that they cannot fulfill. And if they do, we have a system that holds them accountable. It’s not bankruptcy, it’s democracy. State officials who make poor choices with taxpayer dollars are held accountable in elections.
Since the New Deal, the federal government has steadily accumulated more and more power. And with that growth of power came the misperception that the federal government can fix all of our problems. That was never the intention of our Founders. In fact, it was quite the opposite. Any powers not specifically granted to the federal government in the Constitution were reserved for the states.
Opening the doors of federal bankruptcy court to states is not the appropriate response to irresponsible state spending.
No more promises backed by invisible money. The emperor now knows the truth about his garments. It is time for states to take responsibility, make tough decisions, and rein in spending.
Rep. Lamar Smith (R-Texas) is the chair of the House Judiciary Committee.