The most recent edition of National Review magazine has an important article on the impact of public employee pensions on government budgets. The problem, though, isn’t with the stereotypical government bureaucrat. The real costs are found with the men and women in uniform: police officers and firefighters.
Among the more notable passages is this: “The public/private disparity is especially stark when one focuses on public-safety compensation in places such as Oakland (Calif.), police and firemen have accounted for about 75 percent of expenditures from the city’s general fund over the last five years. Average total compensation for an officer in Oakland — a city in which the median family earns $47,000 — is $162,000 per year.”
Among the more notable passages is this: “The public/private disparity is especially stark when one focuses on public-safety compensation in places such as Oakland (Calif.), police and firemen have accounted for about 75 percent of expenditures from the city’s general fund over the last five years. Average total compensation for an officer in Oakland — a city in which the median family earns $47,000 — is $162,000 per year.”
Now, I’m not sure this is apples to applies. I doubt $47,000 for the family also reflects pension and benefit compensation, too. Nevertheless, $162,000 per year in total compensation per public safety officer is mighty high.
And where public safety salaries and benefits go, you can expect those for other government employees to follow. At some point soon, local governments and their voter bosses will have to have a basic discussion on how much public safety officers should make.
I think considerable salaries are in order. The target for reform is on the benefit side, especially pensions. Remember, in Michigan, “Federal and Michigan public pensions are totally exempt. Public pensions include benefits received from the federal civil service, State of Michigan public retirement systems and political subdivisions of Michigan, military retirement and Tier 2 railroad retirement. If the conditions of the plan under step one are met, then these payments are totally exempt from Michigan income tax.”
So, not only do these public employees gain significant pension payments, the payments go untaxed.
By comparison, “Private pension subtractions are limited to $45,120 on a single return and $90,240 on joint returns for tax year 2009.”
So, people working wage and salaried jobs pay a Michigan income tax — and pay local taxes to help fund public pensions. The recipients of these public pensions do not pay a Michigan income tax on them. Taxpayers with private pensions receive only a partial (but still large) exemption from the income tax.
Here’s a couple of quick thoughts to deal with this mess:
1. Since existing pensions are protected by law in Michigan, the state should repeal the income tax exemption for public pensions and earmark the resulting revenue for revenue-sharing payments to local governments.
2. Have all new hires for local governments use a 401(k) program. (All state employees hired after March 30, 1997, are, in fact, in just such a system.)
