12. March, 2004 - workin’ for the weekend

Transit strike links and commentary are at the end today.

The big problem here is one that the rest of the country will be facing, too. With retirement age set at 65, boomers are going to be retiring soon (within the next ten years). That means that there are going to be a lot of retirees. When the average life-expectancy was closer to 70, you’d have sixteen working people for every retired person, and that’s a level of taxation that people can live with (about 2 percent). It also means that the amount of money needed for retirees is relatively small, since the average retiree isn’t going to be alive that much longer.

But as that ratio of working to non-working people shifts (today it’s 3.3 people working for every retiree, and will be 2 to 1 by 2020), the burden on those who are still working becomes heavier. This got a lot of press a few years back when people were talking about the Social Security Crisis. Social Security paid more than $450 billion in benefits last year, with a tax-rate of 12.4 percent. That’s about 1⁄8 of your salary that’s currently going to pay retiree benefits. If nothing is done, Social Security and Medicare will be almost ¾ of the federal budget by 2060. See CATO’s quick facts for more.

Beyond there being more retirees, they’re living longer. In order to self-fund your retirement, which you’ll need to plan for if you assume the system will break down, you need set more money aside while you’re working. Or if you’re counting on your employer taking care of your retirement, as the bus drivers are, your employer needs to set aside that additional money, and the sooner you start, the better your chance of getting enough put away.

And in his ham-handed way, that’s the problem that Peter Bell (and Tim Pawlenty) is trying to deal with. If they promise to maintain the drivers’ health benefits at current levels, it will mean some additional cost now, but the big additional costs are coming down the road, and something has to be done. Again, using numbers for Social Security, dealing with the shortfall today costs about an additional two percent (bumping the tax rate to around 15% from the current 12.4), but if put off until 2075 it would require a jump to over 20% *. Now this isn’t talking about the costs to the Metro Council, since their numbers are going to correspond more to medical expenses, rather than just retirement, but I think that makes the problem worse than using the number for Social Security, rather than better.

Just to make it clear, I think the Met Council needs to move on their position a bit. Shutting down the buses isn’t an acceptable solution. But they also need to take a long, hard look at the costs of offering benefits to retirees, and figure out some way to pay for those. If the state government (their major source of funding) doesn’t give them the money, they have to cut costs, and that’s what they’re trying to do. I don’t have the answer to the problem, and that’s part of why I think this will be a long strike.

Copyright 2009, Dave Polaschek. Last updated on Mon, 15 Feb 2010 13:56:17.