Budget debate shows gap between public and private

Budget debate shows gap between public and private

We won’t pretend that we could advise Gov. Ted Strickland and the Republican Senate or Democratic House how to balance a state budget that stands about $3.25 billion out of kilter.

But we will make a few observations.

The first is that everyone involved in the process is a political animal, and they’d be wise to stop marking their territories so assiduously. Democrats and Republicans are busy playing to special interests and ideologies while the taxpayers just want to see an open debate about service cuts or revenue increases. After the debate, the politicians need to take action.

That is, after all, what the governor, the senators and the representatives are paid to do.

And speaking of pay, since personnel costs are the single most expensive thing in the state’s budget, has enough been done to cut those costs?

State Rep. Bob Hagan of Youngstown, one of four Democrats who held a press conference in Columbus Tuesday to suggest tax cuts put in place during Gov. Bob Taft’s administration be rescinded, says state employees are being asked to make the necessary sacrifices.

Cuts they’ve taken

On Ron Verb’s talk show on WKBN Radio Thursday, Hagan noted that state employees are being required to take 10 or 20 unpaid days off, that they’ve made unspecified concessions in health coverage and that they’re talking about concessions in pensions.

OK, let’s talk about those pensions.

Strickland suggested that the state temporarily pay 8 percent rather than 14 percent of a state employee’s salary into the state’s retirement fund. Employees pay 10 percent, so the state would go from matching every employee dollar with $1.40 to matching every dollar with 80 cents for a period of two years. Strickland said the missed payments would be repaid in the next budget, which presumes a stronger economy. Even so, Chris DeRose, CEO of the Ohio Public Employees Retirement System, said the proposed reduction would have a “dramatic impact on members and retirees, reduce the solvency of the fund and have ramifications far beyond the current fiscal emergency.” And DeRose provided figures to support his point.

But apparently no one is willing to allow for the possibility that public pensions are due for some corrections.

For example, a state employee with 30 years of service and an average salary of $50,000 for his or her three highest years could retire at age 55 or above with an annual pension of $33,000 and health coverage. After 35 years of service, the same worker would receive $39,250.

Here and there

How many private pension plans guarantee those payment levels — and beginning at age 55? As General Motors and Delphi retirees in the Mahoning Valley are learning, private pensions do not come with lifetime guarantees.

In the private sector, even 401(k) matches are not secure. In the last year, hundreds of companies have suspended their dollar-for-dollar matches. Among them are Coca-Cola Bottling Co., UPS, Macy’s, Motorola, Sears, FedEx, Eastman Kodak, General Motors and Ford Motor Co. In an ironic touch, even AARP, the advocacy group formerly known as the American Association of Retired Persons, suspended its 401(k) match.

The financial upheaval for people who lose large parts of their pensions or see their retirement plans change based on the loss of 401(k) matches is happening today. Against that reality, the suggestion by the governor that a portion of the state’s payment into PERS be suspended does not sound unreasonable.

The vehement reaction against the proposal shows the difference between the private and public sectors. One group has no recourse; the other begins playing political hardball.

Public employees are not the only special interests that have reacted to proposed budget cuts with political pressure, and both Republicans and Democrats have shown themselves willing to bend toward their constituencies.

Legislators of both parties could set an example during the crises by taking substantial pay cuts, making real-world contributions to their medical coverage and suspending state contributions to their pensions. The gravity of the situation would be appreciated by others who will be asked to sacrifice. Suspending the pension payments would not endanger the solvency of the retirement system as long as the legislators did not accrue credit toward their retirement during the period that payments weren’t being made.

It would be tough medicine, but everyone agrees that these are tough times.