[Congressional Record Volume 157, Number 41 (Thursday, March 17, 2011)]
[Senate]
[Pages S1808-S1809]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   THE PUBLIC EMPLOYEE PENSION CRISIS

  Mr. HATCH. Mr. President, I rise to speak on a matter of great 
importance to the economic health of State and local governments. I am 
talking about dangerously underfunded employee pensions.
  We hear about this problem every day in States such as Illinois, 
California, New Jersey, and many others. It is a multitrillion-dollar 
problem. Let me repeat that. The underfunding of these pensions runs 
into the trillions of dollars. Not billions, trillions.
  How did this happen? There are two primary causes. First, governments 
have promised too much money in lifetime pensions; and, second, 
governments have not set aside enough money to pay for those pensions. 
The shortfall between the money that has been promised and the money 
set aside is called underfunding, but that is just a sterile accounting 
term that means we don't have enough money to pay the bills. Where I 
come from, that is called being broke. It is bad enough when you go 
broke because you have been irresponsible with your own money. Yet it 
is a tragedy when governments go broke being irresponsible with 
taxpayer money.
  That is what I fear we are watching as this public pension crisis 
unfolds. There have been many studies in recent years of our public 
pension crisis. There is no question about whether this crisis exists. 
The only question is the magnitude of the crisis.
  One prominent study by scholars at the Kellogg School of Business at 
Northwestern University estimates that public pension plans are 
underfunded by over $3 trillion. That is a lot of money. An analyst at 
the Brookings Institute says public pensions are $2.5 trillion in the 
red. A study published last month found that all by itself, California 
has a $240 billion pension shortfall. You heard that right. California 
alone has a pension debt of $\1/4\ trillion. Some have estimated that 
Illinois is in even worse financial shape.
  If the States and localities do not act aggressively to address these 
shortfalls, then the question will not be whether the States will 
become insolvent but when? Regardless of whose numbers and which study 
gets the closest to the mark, there is no denying that public employee 
pensions face a multitrillion-dollar shortfall in the aggregate.
  Though none will deny this shortfall. Some will seek to shift the 
blame and shirk responsibility for this crisis. I want to nip in the 
bud one of the arguments of those interests who would prefer to ignore 
this crisis. They will argue this is not a problem of too many pension 
promises and the underfunding of those promises. They will try to 
divert attention from the fact that public employee pensions have too 
often not been funded on a sound basis. Instead, they will say the 
pension funding problem is owing to the 2008 economic crisis and the 
big businesses that, they say, caused it. This is way off the mark. But 
don't trust me, trust the numbers. This pension shortfall existed 
before the recession, and an attempt to lay blame at the feet of Wall 
Street or big business or some other group is just plain blame 
shifting.
  One aspect of the problem is that governments have been slow--and 
public employees have been resistant--to transitioning to the types of 
retirement plans that private sector workers have been living with for 
years. The rest of the world has moved toward 401(k)-style plans, 
called defined contribution plans. In these plans, costs are lower and 
more predictable. They fit well with an increasingly mobile and dynamic 
workforce. Yet governments have remained wedded to expensive, 
traditional pension plans for far too long.
  These old-style traditional pension plans--defined benefit plans--owe 
a monthly payment for life to each employee regardless of how much 
money the government has set aside, regardless of how well the pension 
assets have been invested, and regardless of whether the ratio of 
active workers to retirees has remained stable. For most private 
companies these plans proved simply unsustainable, and over time they 
moved toward more flexible retirement plans for employees. Yet as 
usual, government is slow. It is slow to innovate and slow to adapt.
  So even though these defined benefit plans had the potential to cause 
enormous financial problems for governments, governments stuck with 
them. Private companies learned long ago that traditional pension plans 
are too expensive for most businesses.
  In 1985, 80 percent of medium and large private companies had a 
traditional pension plan. Today, just 30 percent have a traditional 
plan. By contrast, 84 percent of State and local government workers are 
covered by high-cost traditional pension plans. And government is not 
just any employer. Governments only exist because of taxpayers.
  Ultimately, taxpayers are the employers of government employees. Yet 
these governments are living in the past, playing irresponsibly with 
taxpayer money, and leaving taxpayers to foot the bill for too many 
lifetime pension promises.
  So why do these lifetime pension guarantees continue? There are many 
reasons, but at the top of the list is the unique character of 
government as an employer. Private employers moved away from 
traditional pensions to more affordable 401(k)-style plans because they 
can't stay in business if they ignore economic reality. Yet governments 
have kept their unaffordable traditional plans, often because public 
employee unions use taxpayer-funded union dues to elect State and local 
politicians and then ask the same politicians they just elected for 
costly pension deals at taxpayer expense.
  When a union bargains with a private employer, employer and employee 
have an interest in the business continuing as a viable enterprise. If 
the benefits are costly and uncontrollable, the business goes under and 
everyone is out of a job.
  But where are the interests in a negotiation between a public 
employee union and the person they just helped to elect to office? 
Where are those interests? Union bosses are sitting across the table 
from the Governor of the

[[Page S1809]]

State--the Governor they just helped to elect with millions in campaign 
contributions--and they ask him for a costly, guaranteed lifetime 
retirement package, often with little or no cost-sharing by the public 
employee. What is a politician going to say? Sorry, but I can't help 
you? I doubt it.
  I want to read something from the Wall Street Journal. On October 22, 
2010, just prior to the last election, the Journal carried a story 
about the role the American Federation of State, County and Municipal 
Employees, or AFSCME, was playing in that election. According to the 
journal:

       The American Federation of State, County and Municipal 
     Employees is now the biggest outside spender of the 2010 
     elections. The 1.6 million-member AFSCME is spending a total 
     of $87.5 million on the elections after tapping into a $16 
     million emergency account to help fortify the Democrats' hold 
     on Congress. Last week, AFSCME dug deeper, taking out a $2 
     million loan to fund its push. The group is spending money on 
     television advertisements, phone calls, campaign mailings and 
     other political efforts. ``We're the big dog,'' said Larry 
     Scanlon, the head of AFSCME's political operations. ``But we 
     don't like to brag.''

  ``We are the big dog.'' That about sums it up. And when the big dog 
barks, it expects the people it helped elect to jump. Why do you think 
they are spending all this money? Because public employee unions care 
about global warming?
  Richard Trumka, the head of the AFL-CIO, a man I respect, has said he 
talks with the White House every day and visits a couple times a week. 
Why do people think he is doing that? Playing pick-up basketball with 
the President? He is talking about how to benefit his unions, and 
lately that means public employee unions.
  There were some recent reports suggesting that Organizing for 
America--a Democratic National Committee project designed to reelect 
President Obama--was helping to foment the protests in Wisconsin. These 
unions are spending big-time money to elect politicians because they 
know the politicians will deliver big-time benefits. But the chickens 
are coming home to roost. As we are seeing in State after State, the 
markets have something to say about these collusive relationships and 
the benefits they secure. The credit-rating agencies have announced 
they will begin factoring unfunded pension obligations into the 
calculations they use to rate the creditworthiness of States. This is 
significant because the total value of State bond debt is estimated to 
be around $1 billion, while pension debt is at least two or three times 
that amount.

  State credit ratings reveal another aspect of the State budget 
crisis. The five States that prohibit collective bargaining of 
retirement benefits have Moody's highest credit rating. California and 
Illinois, which allow collective bargaining of retirement benefits for 
public employees, have the lowest credit rating among the 50 States. 
The next four lowest States also allow collective bargaining.
  Illinois is in the worst shape of all, with less than 40 percent of 
the funds needed to pay its public employee pensions. The Illinois 
situation is so dire that for the last 2 years the State has had to 
borrow money just to make its pension contribution. This year Illinois 
had to pay a 2-percent higher interest rate just to borrow money to 
contribute to its pension program. Now, this is madness, and it cannot 
go on forever.
  Thirty years ago the Federal Government moved away from an expensive 
traditional pension plan and set up a basic pension plan in combination 
with a 401(k)-style defined contribution plan. The system has worked 
well so far, although at some point we might need to reform Federal 
pensions too. Some forward-looking States have begun moving to 401(k)-
style plans.
  In my own home State of Utah the traditional pension plan is being 
replaced. New employees are being given a choice between a 401(k)-style 
plan and a hybrid plan with a combination of traditional and 401(k)-
style features.
  Last year Governor Chris Christie in New Jersey added a 401(k) plan 
for a portion of the New Jersey workforce. In Kansas, Governor Sam 
Brownback and the Kansas Legislature are studying the possibility of 
converting their pension system into a 401(k)-style plan. In Wisconsin, 
Governor Scott Walker has asked that the State study the feasibility of 
establishing a 401(k)-style plan.
  There are many potential solutions to the public pension crisis, and 
all of them should receive consideration. We should be encouraging 
these courageous Governors on rather than demonizing them and 
demagoguing this issue. I, for one, would like to congratulate the 
Governor of Wisconsin for his bold stand on the issue of public 
employee benefits. The victory he secured last week is significant. He 
stood responsibly for the long-term interests of his State rather than 
doing the easy thing and caving under the pressure of union-organized 
protests and the childish and disrespectful resistance of Democratic 
lawmakers who chose to flee the States rather than engage in this 
debate.
  Governor Walker understands our greatest enemy is delay. The director 
of the Pew Center on the States has said that while these problems are 
significant, they can be solved if we act now. If we wait, the crisis 
will become unmanageable.
  Mr. President, it is my intention as ranking member of the Finance 
Committee to find a way to address the public pension crises if State 
and local governments don't step up to the plate. I am under no 
illusions this will be an easy task. The problem is both large and 
complex. There are many potential solutions that must be studied, and 
some will not be pleasant.
  Some of my colleagues in the Senate have a proposal to address the 
problem, and I will be working with them as well. I do not have all of 
the answers yet, and I have not settled on what I believe are the best 
solutions. But we are working hard and talking to the experts about the 
best way to proceed.
  I am sure of one thing, however, and I want to be 100 percent clear 
about this. There will be no Federal bailout of any State or local 
government. Let me just repeat that. No Federal bailout.
  Just last month, after Illinois sold its high-interest bonds, the 
Governor indicated that he plans to ask for a Federal guarantee. Well, 
Governor, you can save your breath. The answer is, no.
  We cannot ask taxpayers and the rest of the country to pay for 
underfunded pensions in Illinois, California, or any other State that 
made promises it clearly cannot keep. To do so would be more than 
unfair; it would be immoral. A Federal bailout cannot happen, and it 
will not happen.
  Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. KIRK. Mr. President, I ask unanimous consent the order for the 
quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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