When the servants are paid more than the masters, it is time for a revolution

The term “public servant” should be banned from the vocabulary in Nevada.

I dutifully scanned the report drafted for the Nevada Policy Research Institute by Andrew Biggs, an economist with the American Enterprise Institute, and said to myself, “So what, everybody knows that.”

Biggs concluded the Nevada Public Employees’ Retirement System is vastly unfunded. Well, everyone has known that for years. But using market accounting standards instead of government standards, Biggs estimates PERS is not underfunded by $10 billion as PERS itself reports, but by more than $40 billion.

Andrew Biggs

Numbers that big are nebulous and have about as much perspective and meaning as the number of stars.

Though Ed Vogel had the figures in his story on the Biggs report, it kind of rolled past me until I heard Biggs address an NPRI-sponsored luncheon Tuesday.

Nevada taxpayers are currently shelling out $1.5 billion a year for public employee pensions — direct contributions and the amount taken out of the employee’s pay, yes, that is tax money, too. But to actually cover the real expense of accruing pension costs and amortization of unfunded liabilities currently promised, according Biggs, Nevadans should be spending nearly $6 billion a year.

Does that $6 billion sound vaguely familiar? That is the total state general fund budget for two years.

“What people don’t realize,” Biggs said to the luncheon audience, “is your typical public sector pension plan is a lot more generous than what a typical person is going to get in the private sector. Let’s just take a person and run their wages through what they would get from PERS versus what they could get from a typical 401(k) plan combined with Social Security, because public employees here don’t participate in Social Security.

“They both pay the same amount on average. The total contribution is about the same, but the benefits for someone under PERS — for a full career employee — is somewhere around 50 percent higher.”

It comes down to an issue of fairness.

At the federal level, Biggs noted generous benefits are paid from progressive income taxes, which means the rich are paying those benefits. But at the state level those generous benefits are being paid with sales and property taxes by the typical private sector wage earner.

“There is an equity issue I think when some guy who’s got a 401(k) that may have dropped in value, where he’s not getting a very generous match from his employer, is paying taxes to finance retirement benefits for public employees who get high benefits that are guaranteed,” Biggs said. “And I think there is an equity issue, a gut issue of fairness, that I think needs to be part of this debate.”

It is long past time to do something about public employee pensions before the tab comes due.

In 2008 the Las Vegas Chamber of Commerce called on the Legislature to change public employee retirement benefits from the current direct benefit plan to a direct contribution plan, similar to a 401(k). But lawmakers, who are vested in the PERS plan themselves, have been deaf.

Not only should that take place, but the payout of 2.67 percent per year of service at the highest rate of pay should end tomorrow. It’s ratcheted up over the years. It can be ratcheted down.

Sure give them the promised 2.67 percent through 2012, but starting in 2013 each year of service would garner only 2 percent or less and at the average rate of pay over the career, not the highest, which can be manipulated and spiked — as a 2009 story by A.D. Hopkins pointed out. Also, employees should pay more from their own salaries.

The taxpayers are going to have to revolt, because currently we are the servants.

Yes, the bar at the right is for Nevada public employee pensions.