In the Wall Street Journal, John Fund reports on the Aspen Ideas Festival, a large gathering of innovators and creative policy thinkers. Discussing education reform, he points out that Bill Gates seems to agree with Eileen and Veronique on the problems of fiscal illusion.
Mr. Gates said a big part of the problem [with education spending] is “fraudulent” state budgeting systems, which fail accurately to account for the cost of pension promises. A legislator who “says ‘yes’ doesn’t feel any pain at all,” he said. Thus the “accounting fraud” that lets politicians treat generous teacher pensions as a free lunch rewards them for spending more on retired teachers than on current students.
As Eileen and co-author Andrew Biggs put it:
Given the costs and risks inherent in the defined benefit plan to taxpayers, as well as the political incentives for legislators to over promise benefits to public sector workers while shirking on the state’s contributions, the state should close the current defined benefit plan to new workers and expand the existing defined contribution plans for all new state and local workers. Shifting employees to a defined contribution plan would ensure that New Jersey’s pension system for its public sector workforce is sustainable in the long term and reward younger workers with a guaranteed employer contribution to their individual retirement.
As Mr. Gates is well aware, this problem isn’t some Sopranos-state anomaly, it’s common practice at all levels of American governance. If we want to move forward on fixing our institutions, we have to get an accurate picture of how badly they’re being mismanaged, and eliminate those harmful practices. Students, parents, teachers, and taxpayers are all in this together.