The coming public pension queen?

I have written a little about a potent political issues involving public pension funds. Bloomberg has a story about the Chicago Transportation Authority pension fund, which was facing a huge budget shortfall:

“We’ve identified the problem and a solution,” said CTA Chairman Carole Brown on April 16, 2007. The agency decided to raise money from a bond sale.

A year later, it asked Illinois Auditor General William Holland to research its plan. The state hired an actuary, did a study and, on July 17, concluded that the sale of bonds would most likely result in a loss of taxpayers’ money.

So what happened? They proceeded with the bond issue anyways, against the advice of the state auditor, who turned out to be right:

Thirteen days after that, the CTA ignored the warning and issued $1.9 billion in bonds. Before the year ended, the pension fund was paying out more to bondholders than it was earning on its new influx of money. Instead of closing its funding gap, the CTA was falling further behind.

But the thing is that when public employee pensions lose bets with their money, the taxpayers pay the bills:

In the CTA deal, the fund borrowed $1.9 billion by promising to pay bondholders a 6.8 percent return. The proceeds of the bond sale, held in a money market fund, earned 2 percent — 70 percent less than what the fund was paying for the loan.

The public gets nothing from pension bonds — other than a chance to at least temporarily avoid paying for higher pension fund contributions. Pension bonds portend the possibility of steep tax increases.

This is exactly the objection that so many, including public employee unions on the left, have to provisions of TARP and other bailout proposals.

Most Americans who are fortunate enough to even have a credible retirement plan are looking at their 401(k)s and seeing 40% losses. The public employee unions are looking at their losses and reminding the government that they are owed a guaranteed rate of return. In Oregon it is 8%, which is a fantasy-land number only reached during booms and never sustainable. But the public employee unions turn around and force tax increases on the rest of us.

This is an enemy who is easy to imagine and attack. This is someone who is taking away from your nest-egg to fatten their own because they didn’t win their bets. They live off your tax dollars at their jobs. Then they live off your tax dollars in their retirement.

Just watch. In 10 years, there will be a new phrase in American politics. The public pension queen.