OAKLAND, Calif., May 29, 2015 /PRNewswire-USNewswire/ -- State and local governments across the United States are facing their worst financial crisis in years—a public-pension "tsunami" of epic proportions. Some, such as Detroit and Stockton, have already been forced to declare bankruptcy, but others, such as Los Angeles, Chicago, and the State of California, are still rushing toward the fiscal cliff.
How did the public-pension crisis begin? What will it take to resolve it?
These are questions that economist Lawrence J. McQuillan answers in his new book, California Dreaming: Lessons on How to Resolve America's Public Pension Crisis, published by the Oakland-based Independent Institute.
"This book provides a blueprint for America on how to measure the true extent of a pension problem, identify the political drivers of a crisis, and make strong fiscal and moral arguments in favor of pension reforms that would permanently fix the problem," McQuillan writes.
Drawing on the case of California, McQuillan shows that politicians of both parties set the stage for the crisis, by promising more and more retirement benefits to public employees but failing to put aside enough funds to make good on those promises. The result: state, county, and city governments will collectively be able to meet only 51 percent of their total pension obligations, leaving a $576 billion shortfall that has already cut into funding for schools, roads, policing, and other public services throughout the Golden State and will result in higher taxes on future generations.
Similar problems confront Connecticut, Florida, Illinois, New Jersey, New York, Ohio, Pennsylvania, West Virginia and other states, as well as a host of cities and counties.
Fortunately, there is a way out.
McQuillan offers a comprehensive solution that would resolve California's pension problem in an equitable, responsible, and moral way that would preserve pension benefits already earned, allow governments to provide competitive defined-contribution pensions to employees, and grant governments the flexibility needed to avoid making future generations pay for deals they didn't make. McQuillan's solution could be applied anywhere in America facing a similar problem.
Lawrence J. McQuillan, Ph.D., is Senior Fellow and Director of the Center on Entrepreneurial Innovation at the Independent Institute, a non-profit, non-partisan organization that promotes the power of independent thinking to solve society's most critical social and economic problems.
SOURCE Independent Institute