Outside Looking In

September 01, 2010

By Jason Owens, MPA '11

My friend from college recently sent me an article from Time entitled “Inside the Dire Financial State of the States.” Once I began my studies at Fels, my friends and family started sending me articles and asking me questions about public policy. And although I have read and studied about the magnitude of the financial crisis for our federal, state and local governments, this article did a particularly good job summarizing the problems facing our public leaders and institutions.

We all have heard the stories of record budget gaps, but cumulatively the magnitude is staggering. According to the National Conference of State Legislators, “starting with the 2008 fiscal year state governments have closed more than $300 billion in cumulative budget gaps, with another $125 billion already projected for the coming years.” It is possible that a portion of the reductions have actually come from addressing issues like fraud, waste and abuse, but they mainly represent cuts in jobs and services that families and communities valued.

Even more staggering, both California and New York have economies much larger than Greece – which caused global economic ripples this spring – and these states are at best on uncertain financial ground. Now, my optimism (and fear of the possibility) won’t allow me to think that California and New York are anywhere close to the Greece situation, but $19 billion and $9 billion deficits can rattle the most steadfast optimist among us.

One of the major problems that states and localities are struggling with is public employee pay and benefits, especially pensions. The Pew Center on the States estimates that states are at least $1 trillion short of fulfilling their current pension obligations.

In 2000 half of the states ran fully-funded pension plans, a statistic that shriveled to four in 2008. This problem (coupled with Medicaid) is one of the most challenging obligations for state governments. At my most pragmatic cutting the amount owed to public workers seems to be the best answer. However, these pensions are for police officers, firefighters and teachers – a group of public servants that I believe are owed a comfortable retirement after a lifetime of frontline service.

Additionally, at a time when public safety and education are becoming increasingly important, cutting pensions hardly seems like the prudent action when we need to attract more talent to these jobs. 

A solution currently being kicked around in state houses is hybrid pensions, a concept discussed in a recent Wall Street Journal article.  In hybrid plans state employees receive a portion of their retirement benefits from traditional 401(k) retirement plans. This cost cutting tactic shifts more risk from the state to employees and moves state benefits closer to private sector benefits. I believe this type of leadership and compromise is what is needed in modern government.

Personally, I was never attracted to public leadership because of the pension plans, and I’m willing to bet most of my peers were not either. Coming of age in the era of Enron, Tyco and struggling state government has led me to always believe my retirement would be funded through a combination of private savings, investment and a traditional 401(k).

The picture that is painted in the Time article is particularly striking because I am less than one year from entering the work force again. The challenges of public leadership in the coming decade are daunting. It seems as if the demand for modern government services require more spending while efforts in fiscal responsibility simultaneously needs to be redoubled. Balancing this equation will be the challenge for rising public leaders.

However, I remain optimistic about my future and the future of public leadership and institutions. I believe that my peers and I were attracted to this work because it is hard but vitally important. These challenges also bring opportunity for innovation and new ideas, and I hope to see the best and the brightest of my generation engaged with these problems.

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