There’s science, and then there’s political science. Likewise, there’s math, and then there’s political math. Political math can be deadly to the fiscal health of a political unit, whether it’s a city, state, or country.
Underfunded public pensions are one of those problems that dog governments, but which most people don’t know about. It’s simple, really: Politicians buy labor peace by offering generous pension benefits to government employees. Then they please everyone else by not putting in the contributions required to make the plans meet the projected benefits.
Why does this please everyone else? Money not paid into pension funds can be used for any number of programs and purposes, including hiring more government employees.
Sheila Weinberg has a great quip in a commentary on the pension mess that Illinois has, perhaps one of the worst in the nation: “Former SEC official Peter Chan said, ‘I sometimes wonder whether people understood the math.’ The governors and legislators understood that the political math they were using allowed them to claim they were meeting the constitution’s balanced budget requirement—and get re-elected—by providing increasing services and benefits without losing votes due to the tax hikes necessary to cover these expenses.”