The only step state and local governments can take is to reduce pension benefits (by increasing contributions, extending vesting periods, etc.) for NEW employees. Those governments can also reduce payroll, but the seniority oriented civil service rules ensure that the most expensive (longest-serving) employees will remain on the job. Indeed, they will cling to those jobs like grim death, because the last years provide an opportunity to maximize the pension by taking lots of overtime, etc., in order to get their pensions based on the highest slary possible.

The only solution to this problem is switching all new employees to defined contribtion plans for both pension and health care benefits, and to RUTHLESSLY RUTHLESSLY RUTHLESSLY cut payrolls. That means contracting out everything possible, and firing entire city and state departments.

The problem is, state and local governments cannot necessarily lock workers out when a contract expires, or weather a strike, because for many bargaining units, “binding arbitration” (i.e., a conflicted arbitrator gives the union everything it wants) kicks in when a contract cannot be reached after a certain amount of time.

In short, get ready for much higher taxes, and fewer services, as more of government’s revenues go to service pension and healthcare liabilities.

First, government pension plans aren’t guaranteed by the federal government because they aren’t protected by the Pension Benefit Guaranty Corporation (PBGC). If public plans have problems, it would take a special act of Congress to cover them. So it’s not the same situation as United and Delta, which were covered by the PBGC.

Second, to #2, these plans are not like Social Security. They are truly underfunded because they have asset pools of stocks, bonds, etc. that can be compared to liabilities. Benefits to pensioners are paid from these pools. Contributions are made as specific appropriations each year by the state or local government. They are not automatically made through a specific tax, like Social Security which has no asset pool. Social Security is a “pay-as-you-go” system, meaning taxes paid now go directly to those drawing benefits. The point is higher levels of young immigrants have no direct effect on the funding of public pensions described here.

The only solution is to cut benefits (or even future accruals), increase contributions to the assets, or a combination of both. Since cutting benefits means wrangling with public unions and increasing contributions means taking money away from other uses, public plans that are underfunded can be in real trouble in the future.

In the coming weeks and months, IÂ’ll try to expand the geographic base – or at least give you Easterners a look at whatÂ’s going on in California. Living in San Francisco, I get plenty of material. IÂ’ll keep you up to date with what the kooks are do…