February 20, 2011

Charles Lawton: When considering change, ask if it can sustain

Of all the policy challenges facing Gov. Paul LePage, the most interesting is that surrounding the public employees retirement system. Paradoxically, this is not because it's so difficult, but because it's so simple.

Over the years, Maine taxpayers -- through their elected representatives -- have made a series of promises to teachers and state employees about what we're going to provide for them in retirement.

We've arranged to pay for these promises by having the employees put a portion of their pay into a pot, by matching a portion of that pay with tax dollars and by handing the pot over to a money manager to make it grow with wise and prudent investments.

Each year we take money out of the pot to make good on our promises to those who have met the specified conditions for retirement.

While these conditions may be complicated for each individual, the overall drivers of the system are quite simple -- What are the promises? How much does each side put into the pot? How well does the money manager perform? How are the participants distributed along the lifetime path from first day on the job to deathbed?

Precisely because the system is so simple, it's easy to see where it stands.

Given actuarial projections for the people in the system, we can figure out what we need to take out of the pot each year to keep our promises.

Given the current size of the pot and some estimate of future investment returns, we can figure out how big the pot is likely to be over whatever planning horizon we choose to consider -- 10, 20, 30 years.

Put the two together et voila, the conclusion is obvious: unsustainable.

Either we change the promises, boost the investment returns or hit up participants and taxpayers to put more money into the pot.

And that's exactly what the state treasurer has proposed.

Reasonable people will disagree about how much of each variable to tweak to return the system to a sustainable basis, but none but the most head-in-the-sand, flat-Earther can dispute the reality of the problem. And that's why Bruce Poliquin's proposal is so important -- simply by naming the problem, he's taken a huge step toward its solution.

And that's precisely why this progress is so important -- it points the way toward solutions for several other of Maine's seemingly intractable problems.

Sustainability is the framework for looking at job creation, tax reform, environmental protection, even (or especially) education reform, the brain drain and immigration.

As long as our reaction to every policy proposal is the traditional two-step -- first parse it carefully to find out what hurts or helps me, and second, organize my peers to oppose (or support) it to the death -- we will get nowhere. And with the problems I've mentioned, we have a long history of exactly that.

If instead, we follow the model set for the state retirement system (and, incidentally, by the Obama administration for federal involvement in the housing industry) by laying out the forces driving the current "system" and showing how various players can each contribute to a long-run solution, we are much more likely to debate our way to a multiyear solution.

The key is to formulate our problems as games whose players we have to identify and whose rules we have to define. And, most importantly, we have to define "winning" not as defeating our "enemies" but as achieving a sustainable community.

We won't solve our brain drain problem by blowing up the bridge in Kittery and arresting immigrants but by creating jobs and welcoming visitors. We won't solve our high tax problem by fighting any proposal that might increase my taxes.

We won't solve our high cost of government problem by closing all the schools (or police stations or fire departments) except the one closest to me.

We won't, in a word, change the course we've been on since the collapse of the Cold War and the digital opening of the global economy until we change our definition of "winning the future," from "I don't lose anything" to "I live in a sustainable community."

Charles Lawton is senior economist for Planning Decisions, a public policy research firm. He can be reached at:

clawton@maine.rr.com

 

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