The StarTribune’s front page today features a Minneapolis family saying, “We’re feeling trapped” by rising city property taxes. Mayor Rybak sounded like he was feeling trapped,too–especially by city pensions.

The front page also featured the last article in a series called “The Reckoning; Minnesota Confronts its Budget Crisis”   that included the Minnesota Free Market’s Pension Reform Project  and former State Auditor Pat Anderson (page A11), who has joined our effort to educate Minnesotans about public pensions, the state’s unfunded liabilities and other tough budget issues facing the state. Here’s Pat:

“There isn’t a push to get rid of pensions; it’s to lower dollars going in,” said former State Auditor Pat Anderson, a Republican who joined the Minnesota Free Market Institutes’s Pension Reform Project.

Anderson and others say the pension system encourages risk-averse employees who never leave. The longer they stay, the more seniority they acquire and the sweeter their pension becomes. That, she said, leaves little room for more entrepreneurial types.

“If we want to attract good people to government, who aren’t careerist, you need a system that works,” she said.

The article, called Public Pay, Benefits Set Off New ‘Civil War’  summarizes the conflict and issues well. We have a shrinking private sector and a growing public sector –and they have been on a collision course for years. It took a severe economic downturn to finally get enough people to look up and see the problem that we have been pointing to for years. What the public sector has failed to grasp is that folks in the private sector are maxed out and feeling insecure about the future. Public compensation packages have gone well beyond the old trade-offs. Private sector workers feel betrayed, taken advantage of. It has become very personal.

Some public employees feel “demonized” by this discussion. (Many that we know, by the way, are also critical of the system.) But the best thing they can do is ask themselves and their unions how they can be part of the solution–instead of repeating the same old class rhetoric. (Which includes references by the Strib to the fact that both Anderson and Governor Pawlenty are eligible for pensions; does eligibility for a pension mean one cannot be a critic of state pensions? One would think the Strib would either hold the snarky commentary or admire them for looking critically at their own benefits.)

As the article notes, the problem is no longer theoretical—and the bond markets are reacting to unfunded pension liabilities and other state debts. Rating agencies are taking a closer look at the issue. “Moody’s Investor Service, a premier credit-rating agency, issued a report this year that added pension obligations to its formula for determining a state’s fiscal health….Minnesota has one the best credit ratings in the nation, but adding its unfunded pension liability drops it to the middle of the pack.”  Minnesotans like to pat themselves on the back for our fiscal prudence; these kinds of “reality checks” make it clear that our fiscal house is not in order. (New Jersey’s bond rating was just lowered due to its pension debt. )

The Federal Reserve devoted  much of its fedgazette in January  to Pensions in Minnesota and other parts of its district.

Pensions are just one part of the overall budget discussion taking place at kitchen tables and conference tables all over the state. We have also talked recently about “Reinventing the Workforce”  in the public sector. We note here that the private sector is in a constant cycle of reinventing itself–it’s the great thing about free markets. You either figure out a better way to make that mousetrap, or you go out of business. The state may never be subject to quite the same competitive forces (sometimes called “destructive creativity”) of capitalism but why can’t we design state employment to be more competitive–or at least lined up with the sector that pays the bills? This recession has revealed many bad and expensive habits adopted during the “fat” years. Let’s let the “lean” years lead us to a state government designed to deliver core services in a way that encourages individuals and their families to take personal responsibility while maximizing individual liberty and free markets. It’s a tall order, but we are a tall people.