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While we’ve been wrapped up in a 60-day legislative session that has included a variety of important policy issues, most notably on education reform, New Mexico policymakers, media and the public have watched in detachment the ongoing government labor standoff now happening in Wisconsin.
So far, New Mexico has been relatively quiet on the pension issue, but that isn’t because we don’t have a pension problem. We do, and as a percentage of GDP, New Mexico’s pension liabilities are actually greater than any state’s but Ohio and Wisconsin, both of which are attempting to make needed reforms.
Based on the foundation’s studies, the main long-term driver of our pension problems is continued over-employment in the public sector. Reducing the number of state and local workers in New Mexico to the national average, relative to the number of private sector workers, would save taxpayers in the state an astonishing $2.5 billion annually while reducing compensation to the national average for those very same workers would save just under $700 million annually.
That money would both reduce the number of future pensioners while freeing up a great deal of money to make good on already accumulated pension obligations.
The problem is that, as we’re seeing in Wisconsin, solving the government pension problem is not going to be easy or popular with the politically-powerful government employee unions. And, New Mexico’s legislature is still controlled by people who are in thrall to government employee labor unions. After all, as was recently pointed out in the Albuquerque Journal, the American Federation of State, County, and Municipal Employees (AFSCME) handed out $592,300 in political contributions from last April through the end of 2010 while the supposedly mighty oil and gas industry handed out a mere $183,000 (30 percent of what AFSCME spent).
But, solutions do exist, if and when the political will exists to tackle the issue:
• Significantly reduce government employment;
•Transform the pension system – especially for all new hires – into a defined contribution and away from a defined contribution system, (this could actually be a popular step as today’s workers feel more comfortable controlling their own retirement savings)
•Government employee contributions must be increased further
•New Mexico’s elected leaders must expand the private sector in order to pay the bills.
Far from being a partisan issue, New Mexico’s pension system should be of bi-partisan concern. Where conservatives see pension burdens driving taxes higher, liberals must be aware that pension spending will crowd out spending on education, health care, and basic government services over time.
In California, for example, a state where the pension issue has become a hot-button topic, David Crane, a registered Democrat who handled the pension issue for Gov. Arnold Schwarzenegger, said “This year we’re spending 10 percent less on higher education than we did 10 years ago, parks and recreation 40 percent less, environmental protection 80 percent less, while pension spending is up 2,500 percent.”
The government pension issue is in many ways analogous to the Social Security and Medicare issues at the federal level except all Americans could at least expect to benefit from federal entitlements at some point in their lives. Defined benefit pensions as generous as those given to state and local government workers (which are now burdening taxpayers nationwide) are almost unheard of in the private sector.
Regardless of the final outcome of the battle in Wisconsin, Governor Scott Walker has grabbed the “third rail” of state politics. It is time for New Mexico’s elected leaders to do the same.
Paul Gessing, president
Rio Grande Foundation