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But first Detroit goes boss will new York and Chicago be next.
The mayors of those two cities warning that their public pension costs are growing totally out of control.
Which is really what did in Detroit and many other cities are facing the same time -- so is this proof it's time to -- public pensions before they all go bust.
Hi everybody I'm David as a welcome to Forbes dot -- let's go and focus with Steve Forbes Rick got -- John Candy -- -- -- Sabrina -- and Elizabeth MacDonald John Candy should we scrap these public pension.
Yes get rid of them what is public service it is a sacrifice it's supposed to be short term sacrifice before you go back in the private sector.
And produce real economic growth.
The problem now with the with the high government paid in big pension plans is that we are creating.
Lifelong government workers that are a burden on all the people working in the real economy.
If you get rid of them they allowed an incentive to get back in the real world and cities will no longer have pension problem.
Well Rick and the pension problems are just enormous New York City just as one example of this is repeated in many cities over the country.
It has 5000 fewer cops now than it did ten years ago.
But the price of the police force is double wide because the pension costs have quadruple.
So we have fewer -- 5000 bureaucrats were paying twice as much for them because a pension costs.
I asked John I do have to start by taking have been an issue with what John said because I don't think policemen and firemen would agree that they should be risking their lives as a privilege to serve us.
See you have to be a little bit careful of that and you're right David let in New York 95%.
At every public employee.
Doesn't contribute a nickel to their retirement that is not okay.
What -- I think we have to be careful we don't need to scrap these programs we can't forget about people who've worked their whole career expecting their pension but it is time to reform them.
Well and Steve that's a question how do you do it because it's gonna be at Detroit is not going to be the only city that goes bust.
The other problem is unless it does file file bankruptcy cities that cannot to -- most of these plans because -- state constitutions which say can't do that.
So they're gonna have to negotiate with these unions to do it what they should start -- having 401K plans for new workers.
And then try efforts -- get higher interest rates to a new wood ties what their obligations have been so far and then -- and in the future.
And -- the problem really is with the idea public sector unions because they -- not beholden to the taxpayers we who pay their bills they're beholden.
To politicians are politicians rely on them to get reelected that's why they have these unsustainable Beatles.
Yeah and unfortunately our politicians are mathematically ignorant you take an example calpers which manages the California State pension fund.
It is assuming a seven point seven point 5% annual return.
From now and tell Armageddon.
Well nobody's getting seven and a half percent today without putting their money at risk 5% is a much more realistic assumption today.
And so pension should be cut by a third right off the bat to reflect real market returns.
And it indymac of course if you -- that -- have always public sector strikes which are supposed to be illegal in many places.
They're really not they call in these these sick in days and so forth so that's what we're gonna be stuck what we're -- -- be stuck with chaos coming up.
Very soon are we.
-- right and also you know we have these politicians like Mayor Bloomberg groups focus on big -- sodas and salt in foods.
I'm telling you that's senate reports likes how some fire and they're still smoking in bed and here's a prepare the hospital.
We -- -- -- You know we have and we -- already reform happening you can't change the structure of a pension.
Apparent penchant for future higher hires.
Meaning into -- 401K.
They do it is in places like San Diego and alas they Utah's doing reform so Washington DC.
We can also unforced that you can cut unfunded health care benefits so they can be cut.
Without going to court that -- happening in Stockton and VA health and the thing is that I irony here David is that.
Already health reform may be taking care of this problem health reform they're starting to weigh whether to.
Hire new workers are cut back on -- services so that's the bottom line deep cut back on government services like police and firemen.
Or do you reform okay -- -- a Mac mentioned that that the private sector is doing a lot of of reforms in their own pension programs that problem is if they try to do that the public sector.
You know we're gonna see strikes everywhere we're gonna see -- -- these public sector unions trying to shut down the city's.
There might be that they're the other side of the story which are American taxpayers I -- there are other hardworking Americans got their vision have to shoulder.
The bill for unreasonable compensation packages I think what it what Liz said and what she said earlier is important that is that -- the financial landscape is shifting.
I'm Gallup recently found -- current retirees are are relying largely on pensions and Social Security.
But those approaching retirement future retirees are planning on relying on their 401 -- and -- I -- I think it's important to -- remember.
The people are getting more accustomed to into doing these kind of prided individualized savings plans and when he says to start shifting with.
Those younger worker but as Steve this is again we've we've always been put it off in the future the problem is right now what happened at Detroit then suddenly woke up 1 morning -- realize they were broke.
That's gonna happen -- Charlton West Virginia the little mid size city in in America right now they're paying for their retiree cost out of the budget.
That's a Ponzi scheme that that can only last for a couple more months -- pay is given never works and then making promises it can't afford to keep never work either.
Unfortunate David's gonna take one more big city to go bust before you going to be able to sit down and negotiate these other which one do you like -- -- by the way could be Chicago they have a real disaster coming up and it's twenty dowdy at night or something on that.
And one of the -- you can get creative on David -- health savings accounts.
For our retirees -- for current workers.
Which give people money which they control enough cost and -- isn't the administration going in exactly opposite direction yes but there's nothing like reality especially if your mayor facing -- bankruptcy -- would sit down and start doing some of these reforms -- -- -- -- talk about Chicago.
Illinois a case in point their pension costs -- two and a half times what their state brings in a tax revenues.
The taxpayers it's so unfair supreme that's right it's so unfair what's happening to -- -- taxpayers across the country of property taxes continue to go up when we have beach lifeguards and Orange County.
An Orange County California retiring at age 51 getting a 108000.
US and that -- -- that I should -- not -- Rick isn't the real problem public sector unions themselves I -- -- Very their boss their mansion it's not like the private sector where your -- you work on a for profit system.
Their boss their pay master.
Yet the real problem the honest -- -- on both sides of this equation and you can say that people who have been running this these cities have been a little bit too kowtowing.
To the unions themselves a little bit -- air ball a little bit I'm I'm -- knowledgeably acknowledging it's a fair statement but.
We also know we we're seeing the same thing that we -- at the national level no planning you knew this day was coming when you're gonna get to these massive retirements.
And politicians just didn't bother worrying about it but -- -- everybody I.
Some -- some people knew about this when they saw the creation of public sector unions they worried about teachers going on strike they're worried about a lot of things including.
Pension costs going too -- because politicians would promise them the Buddha for their political support.
And people I know I'm John Candy go ahead.
Even FDR of all people worried about this -- one is correct and I think we've got to get back to the basic truth that government employment.
Shouldn't be a lifetime concept in the way to make it not that way.
Is to make the pay lower to not give out these gold plated pensions so that people have an incentive to get back into the productive private sector and not be a burden on taxpayers are.
Green -- go -- Well that's exactly right we don't wanna be hitting public sector employees against private sector employees and right now the American people have a very negative you know but Sabrina -- -- -- where where private sector unions are okay because they're going against the management which is a private company.
Public sector unions are going against us if they -- right it's us the taxpayer were the ones who pay their bills so is there something screwy about the idea public sector unions.
There are making that this is why 42% of Americans I'm feel that Indian should have less power because they feel though they are being benefited at their expense and that is the real problem here.
Is it you who are we going to favor we can't pick winners -- -- shares -- BO.
These -- rich girl how we started talking about scrapping public sector pensions what about scrapping public sector unions.
Oh well I think that's a great idea I think they should be illegal by John Tammy pointed out that even labor -- -- FDR was against them.
And to that I would have of labor leader George Meany.
I mean it created -- it created what inevitably is going to be a Ponzi scheme and now it now it's all collapse.
Either way FDR -- -- against striking of the unit is a -- -- using collective bargain I think he favored public figures but he was against the putt that collective bargaining.
Program of -- of a public -- but Steve there's no way to avoid it eventually the only tool that a union has to get what it wants is a strike right.
Yeah well one way to deal with unions David is what to Wisconsin and others are doing and that is give people a choice about -- paying dues.
Suddenly you know they'd rather have the money been given a to a union.
And again for a one case you can promise the -- but if you don't put the money end.
They know it's not.
And remember by the way the union mobs in Wisconsin lost their battle against Scott -- so unions be where --