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Greek crisis offers lesson in funding public pensions

A Greek flag is reflected on smashed windows

A Greek flag is reflected on smashed windows of a bank in Athens. (Feb. 16, 2012) Credit: AP

The situation with Greece's debt and membership in the European Union has veered up and down with world markets gyrating in response for five years, since the first bailout of the Greek government. Scheduled to vote on Sunday to accept more spending cuts and pension and benefit reforms as conditions for another bailout, Greece can't repay the bulk of the more than $366 billion it owes.

Once an economy sinks into a state like Greece's, it's almost impossible to fix it. Its citizens have had generous pension and health benefits, and tax evasion is the national sport. It worked while the economy boomed and interest rates were low. It blew up when the economy crashed and interest rates on Greek debt ballooned. Now, Greece can't cut government spending or continue it without making matters worse.

Excessive public pension and health care benefits bleed economies. We see it on Long Island, and across the state and nation. Here we don't evade the taxes necessary to pay these benefits, but flee the state to avoid them. That eventually will depress the New York and Long Island economies and make the situation less and less sustainable.

Public pensions are well-funded in New York, and benefits promised and earned so far can be honored. But funding pensions for current employees is becoming an untenable burden for taxpayers, even with new contribution rules, limits on benefit-inflating and tougher age requirements. That's why private industries have gone to 401ks. Our public retirees also have lifetime health benefits which, unlike the pensions, aren't funded, creating a staggering and uncertain future liability.

You can't climb out of the kind of tailspin Greece is in. The only answer is making benefits sustainable before the disaster strikes.