Sunday, July 10, 2011

What do High Speed Rail and Public Pensions have in common?

In the last few weeks there has been a lot of news about both.   The BEE this morning estimated that by the end of next year, California will have spent (blown) about $630 million on high speed rail - not on getting it but on planning it.  The BEE also presented a story which detailed that of the 226 retirees from the Sacramento Area into the Teacher's Retirement System (STRS);46%  of those had at least a 10% boost in their salaries in the last three years of service.  That boost means bigger dollars in retirement.   The Sacramento County Office of Education had 14 pensioners during the period and 11 of those had at least a 10% jump in pay.   Evidently those increases were not related to significantly improved performance of students.  Nor is it likely that they had anything to do with funding levels available for the classroom. A lot of this finagling came from a provision added to law during the Davis Administration which allows public employees to choose their best year rather than an average of their last three.  As the BEE has pointed out that has led to a lot of monkey business.

Critics of the coverage on the HSR project yammer that this is all about progress.   Critics of the coverage on pensions point out that not every retiree gets big bucks.  The first is speculation, the second true - but neither are really relevant to the real story here.

Both of these stories are classic examples of what economists call "rent seeking" - extracting value out of something by transferring costs to another.   Unfortunately, the boondogglers for the HSR project and the ones for the pension nonsense have the same target in mind.  Yup, the taxpayer.   Concentrate the benefits.  In the case of HSR - to the consultants who are making all those plans without a future.  In the case of pensions, to the public employees who are reaping the lifelong benefits.     The other side of rent seeking is to disburse the costs.   No one sees the small amount of additional cost to their tax bills because of a project which is unlikely to ever be successful.  Nor will people be able to calculate the incremental cost of all those inflated pensions to individual taxpayers.

When government grows to large, it becomes easier and easier to play hide the peanut.  Unfortunately, at some point the financing source of that game, the taxpayers, will figure it out.  When they do they are likely to just say no.  They should.

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