What a summer. No sooner did streets and sidewalks collapse in mid-town Manhattan, than another example of the country’s aging infrastructure plummeted into the mighty Mississippi River in Minnesota.
The soundness of today’s financial markets was also called into question when the market for Collateralized Debt Obligations (CDOs) that are packed with sub-prime mortgages all of a sudden dried up. The result has been tumultuous stock markets around the world, with the viability of such financial giants as Countrywide Mortgage and Washington Mutual being debated.
Although seemingly unrelated, these calamities on Main Street and Wall Street are a harbinger of bad things to come for taxpayers.
“The age of the infrastructure in the U.S. is old. A lot of the highways and bridges are 30 to 35 years old,” Essam Zaghloul, CEO of Fiber Optic Systems Technology (also known as Fox-Tek) told CNET after the Minneapolis bridge collapse. “The roads are old, and they aren’t always safe.” Over 500 bridges collapsed in the United States during the 1990s and 70,000 bridges were found structurally inadequate by a recent federal audit.
An International Herald Tribune article questioned whether America’s aging infrastructure was slowing down the economy. “Yes,” was the answer from the American Society of Civil Engineers in 2005, who gave the nation Cs and Ds in 14 of 15 infrastructure categories, ranging from highways to waterways, with an “incomplete” added for security.
Larry Roth, a professional engineer who is deputy executive director of the engineers’ group says, “Not only are we not keeping pace with growth, but we’re not keeping pace with the maintenance that’s required. As a result, our infrastructure is simply crumbling.”
Here in Nevada, not only is the infrastructure aging, but more new infrastructure must be built to accommodate the thousands of new residents migrating here each year. State and local governments have expanded enormously during the past decade, but the state’s roads are clogged and many need repair.
But like most areas of the country, Nevada infrastructure — which taxpayers must use each and every day — will be sacrificed so that aging government employees may retire in comfort. According to the Summary Annual Financial Report of the Public Employees’ Retirement System of Nevada for the fiscal year ended June 30, 2006, the average monthly compensation at retirement for regular state and local government employees as of June 2006 was $4,643 per month. For police and fire retirees, the average was $7,153. According to the report, the average state employee retires at 60, while police and fire-folk hang up their guns and hoses on average at age 55.
Taxpayers pay the freight for both the working and retirement years for these government workers, many of whom make $100,000 plus per year, with healthy cops and firefighters living longer than the average Nevadan despite retiring when many in the private sector are just hitting their career strides.
During the last ten years the membership of NVPERS has grown at an annual clip of 4.74 percent — to 98,187 active members and 33,262 retirees and beneficiaries as of June 30, 2006. But just as with Social Security, the number of working members of NVPERS is growing at a slower rate than the number of retired and retired-disabled members.
“As a result, the number of active members per retired/retired-disabled member (excluding beneficiaries and survivors) has changed from 4.4 active members per retiree in 1997 to 3.4 active members per retiree in 2006,” says the 2006 NVPERS Report.
Throw in beneficiaries and survivors and the ratio falls to 2.95. Put another way, while NVPERS benefit payments increased in 2006 by 12.5 percent, contributions increased by only 7.8 percent. Under Nevada’s system, government workers are rewarded for retiring early. Actuarially speaking, this dog won’t hunt.
As of June 2006, the system was 74.9 percent funded. That’s down from 75.8 percent a year before and 81 percent in 2001. Of course, this assumes a long-term actuarial objective of an 8 percent annual return on the plan’s investments, which as of June 2006 were 53 percent in equities, about 36 percent in fixed income, with the rest in cash and alternative investments.
Given the topsy-turvy state of the financial markets — kept afloat only by inflationary monetary injections from the world’s central banks — is the 8 percent return assumption reasonable? How about NVPERS’ 3.5 percent inflation assumption?
Apparently NVPERS members need not worry about how their retirement is funded or how the roads are paid for.
That’s merely a taxpayer problem.
Doug French is executive vice-president of a Southern Nevada bank and a policy fellow of the Nevada Policy Research Institute.