Wishful Thinking

Here is a story that demonstrates the triumph of governmental hope over experience as well as anything I've come across in a long while.
by | April 9, 2008
 

Here is a story that demonstrates the triumph of governmental hope over experience as well as anything I've come across in a long while.

Montgomery County, Maryland -- the wealthy jurisdiction where I live -- faces a $300 million deficit, based in at least some small measure on generous raises given to police officers and general government workers last year. The result will be a property tax increase (on top of an income tax increase for the state's wealthiest residents, who mostly live in the county, which was just passed by the legislature), plus service cuts.

So what does County Executive Ike Leggett propose as the result of his latest contract negotiation? A 28 percent pay increase, over three years, for firefighters, plus some pension goodies for just about everybody on staff. The argument is that county firefighters are underpaid compared with their brethren in other local jurisdictions, with some of them unable to afford housing in the area. The story doesn't address the question of whether the county is losing staff due to its comparatively stingy salaries.

What's really remarkable about this story are the explanations given by Joseph Adler, the county's human resources director.

Sparks said the union is well aware of the fiscal challenges facing the county, and the highest raises are scheduled to coincide with an anticipated economic rebound, "when there will be more resources to be able to afford it."

Economic forecasters across the country are now giving thanks to Joseph Adler for letting the world know when the economy will be going good and strong again. Okay, the economy is cyclical. Mr. Adler, if you are able to predict with certainty that the economy will be in good enough shape to make this package affordable three years out, are you equally confident that it will remain equally strong four, five and six years from now?

Then there is the pension deal. Most Montgomery County workers are going to be given a chance to switch to a retirement plan that guarantees a 7.25 return on employee and county contributions. Sounds pretty good, I'd say.

The county's consultants claim that the fund will actually make 8 percent a year. The county will actually make money! assure the merry consultants. But 8 percent is what most pension funds assume, and it's why pension deficits are in the hundreds of billions of dollars.

As of last month, though, the 10-year investment return on the county's pension fund was 6.85 percent.

"In the long run, it will work itself out," Adler said.

In the long run, it will work itself out -- more brilliant long-term planning from our financial master!

One last quote from Ann Marimow's story:

Council member Phil Andrews (D-Rockville-Gaithersburg), who chairs the Public Safety Committee, called the contracts "unsustainable, unnecessary and unrelated to real-world economic conditions," and he urged his council colleagues to reject them.

"It's difficult, although necessary, for elected officials to occasionally say no. This is one of those years," he said.

Go, Phil. It's always hard to argue that firefighters don't deserve more money, but their timing is bad this time around. It's worth being skeptical about raises of this magnitude during the best of times, because inevitably they become hard to sustain when times turn sour. (See: last year's Montgomery County raises.)

During bad times -- well, this just ain't the right time. If you want to raise salaries this much, raise the taxes to pay for them. 

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