Illinois State pension cuts OK’d
Read about it here: State pension cuts OK’d
This legislation passed the Illinois House 92-17 and then the Senate quickly passed it 48-6. Some highlights.
Under the plan, future employees in 13 retirement systems could not retire with full benefits until 67. Some now can retire at 55. Future employees’ pensions would be based on an eight-year average of pay rather than four years.
The measure also caps the amount of salary on which a pension can be based at $106,800; prevents someone from drawing pensions from more than one public retirement system, and limits post-retirement cost-of-living increases.
Both of those seem very reasonable. Now we get to the interesting part:
The plan also gives Chicago’s public schools a windfall to address what could be a $1 billion deficit next school year by reducing the amount that must be contributed toward teacher pensions by $1.23 billion over three years. The measure also extends by 14 years the period when the Chicago Teachers Pension Fund must be 90 percent funded. It is now 74 percent funded.
This was the bone thrown to those who may have not approved pension modification legislation so quickly. The legislation extends the time for getting the Chicago Teachers Pension properly funded – in other words, it allows the government to not recognize the true debt on their balance sheet. I’m all for paying teachers well and trying to improve the quality of teachers, especially in the inner city. What I’m not for is to not be truthful about the commitments our government entities have made of our future tax dollars (work.)
So, this action by the state of Illinois is a bit less impressive than it first seems. The reductions in pensions are only for newly hired workers and thus the reductions in government obligations are a few decades out. Meanwhile, the current problem of the Chicago Teachers Pension is not only not being addressed, it is being further delayed.
All in all, this is a good step. Not a big step, but at least a step forward. We need many more of these.
Overall, I guess this is a step in the right direction.
Pittsburgh may hike parking violation fines
City may hike parking violation fines
“New revenue could help bail out pension fund”
The reason I think this article is funny important is that it shows how people still are unwilling to accept reality. They can raise taxes all they want, Pittsburgh will never have enough money for the promises they’ve made. See: Pittsburgh City Pension is Dead
I’m not saying they shouldn’t raise parking fees and ticket costs. It seems they haven’t in a while. However, it’s like throwing a bucket of water on a burning warehouse. Maybe it looks like you’re helping, but mostly your just delaying the inevitable.
Cuomo Probes Pension ‘Spiking’
Cuomo Probes Pension ‘Spiking’
He cited an example of a police officer with a salary of $74,000 who earned more than $125,000 in overtime in his final year of employment. That led to pension payments partly based on a salary of about $200,000 in his last year of work, which over time will cost taxpayers an additional $1.2 million, Mr. Cuomo said.
Another evil Republican Democrat trying to take money from public sector employees. Or, an AG doing his job and investigating fraud.
Fort Worth council must stop putting off the inevitable
I thought this was a nicely written editorial in the Fort Worth Star-Telegram.
Fort Worth council must stop putting off the inevitable
Average Fort Worth police base pay for all ranks is $64,374. The average rises to $71,073 when including other compensation such as overtime and educational incentives. The annual police turnover rate, excluding retirements, is only 2.7 percent for a good reason.
I’d like to highlight the 2.7 percent turnover rate as this is the most important piece of data in the larger debate. Comparisons of public and private salaries is not important. The important question is whether the salary, benefits, job duties, and work environment of the public sector jobs are such that people choose to stay or leave. A 2.7 percent turnover rate is VERY low. If public sector jobs were so awful, the turnover would be higher.
Another good point, and my main theme with this blog.
But public servants should not be disproportionately rewarded at the expense of harming the overall financial health of the city they serve.
Over-rewarding any subgroup does not balance out some other injustice. It seems that many of my more liberal friends immediately start talking about bailouts of banks or some other corporatist action by the government as a reason to support the pensions of public workers. Two wrongs do not make a right. Public sector employees should be fairly paid. Paying them more than what they deserve (which should be based on the overall labor market) is simply a transfer of wealth from the citizens as a whole to a small subset of “lucky” job lottery winners who happened to have gotten one of these public sector jobs. This transfer of wealth takes away from our ability to pay for good teachers, keep our libraries open, and invest in other important resources.
If employees are not treated well at a job, they should leave. It is that simple. From my perspective and my personal experience, public sector employees don’t have great jobs, they don’t get paid all that well, but they also have it very, very easy with the expectation of a gravy train at the end. This is why they don’t leave for the private sector.
Wisconsin Pension to use Leverage
After a 4 month break to catch up with work and enjoy the holidays, the SWIB action has brought me out of blogging “retirement.”
The State of Wisconsin Investment Board (SWIB) has recently decided to use leverage in their investment portfolio.
The State of Wisconsin Investment Board trustees voted Tuesday to borrow the equivalent of 4% of the pension fund’s biggest chunk of assets and use it to more than double its position in Treasury Inflation Protected Securities, or TIPS.
The action makes the investment board, known as SWIB, one of the first public pension plans in the country to use debt to buy more securities. It’s the board’s first move on a three-year plan recommended by a San Francisco consulting firm that would have SWIB borrow the equivalent of 20% of the $67.8 billion in assets held in its core fund and use it to boost the percentage of TIPS in its portfolio to 20%, from 3% now.
You can read some write ups here:
The basic concept is this. SWIB has a goal of an annualized return of 7.8% to to pay the benefits it has promised to pay. The pension assets are invested in a variety of “pools”, each with its own volatility. The pension board (from what I’ve read) is investing the capital from the debt into TIPS, which historically has lower volatility compared with equities. Thus the SWIB claim that they are “lowering risk.”
What they aren’t forthcoming about is by using leverage, they now have a new risk. Because now they are levered.
There are 2 interesting aspects of this strategy.
- Investing in TIPS is a bet on inflation, which they claim it isn’t. If it isn’t a bet on inflation, than why TIPS?
- They don’t say how long they will implement this strategy. Forever?
I feel the bet on TIPS is misguided. I’m not an investment professional, but I have a hard time seeing inflation in the near future. The money supply continues to shrink and will for quite some time.
Pensions Load up on Private Equity. Pay to Play?
Pay to Play? Could it be that the multi-billion dollar pension funds attract the leeches? Please read: Pension probe looks at payouts to public officials
Steven Rattner, a founder of the private-equity firm, gave $20,000 in campaign contributions to Gov. Bill Richardson in 2002 and 2006. Richardson sits on the New Mexico State Investment Council.
The investment council approved a $20 million investment with Quadrangle in 2005. Richardson was not present for the vote.
The New Mexico investment has generated about $1 million in management fees for Quadrangle.
How handy to not be present. Seems like a form of plausible deniability.
More can be read in the original NYT article N.Y. Pension Deals Seen as Focus of Wide Inquiry
The inquiry, which is examining the activities of a number of investment companies, focuses on what has been a widespread practice among hedge funds and private equity firms — paying so-called placement agents to gain business managing the pension funds run by states for public employees.
A “placement agent”. How does one become a placement agent? I suspect being politically connected is a requirement.
The Carlyle Group, which over the years has employed George H. W. Bush and the former British prime minister John Major, is among the most prominent of the firms under scrutiny, and manages $1.5 billion of the state’s pension assets.
State and local pensions are a huge pot of money and the vultures are after it. These stories remind me of the poker table quote. If you look around and don’t see the patsy, you’re the patsy. I’m pretty sure the pension funds are the patsy.
And I think Leo at Pension Pulse would agree. A Private Equity Quagmire.
Pittsburgh City Pension is Dead
The numbers from the Pittsburgh city pension are startling.
Finance director: Pittsburgh’s pension liabilities could top $1 billion
The magnitude of the difference between benefits offered and funding of the pension is simply mind boggling. It looks, at best, something like this:
This is based on 2007 data. Current picture is worse.
The Pittsburgh city pension has been historically underfunded – this is not caused by the current stock market decline.
From this article: Pittsburgh’s Fiscal Crisis (2004)
Years of operating retirement systems on a pay-as-you-go basis left the city with accumulated unfunded liabilities totaling $515 million in 1995.
You might think having such a huge structural deficit would lead to some type of reform. It didn’t. The city decided to kick the can down the road by issuing more debt.
The city issued $326 million in pension obligation bonds in 1996 and 1998 to bring down that unfunded liability.
Now THAT is amazing. Pensions are debt. Issuing bonds to bring down the unfunded liability is simply an accounting gimmick. This shifts the liability from one account (pension liability) to a different account (pension obligation bond liability). NOTHING has changed.
Simply amazing what the leaders of Pittsburgh have been able allowed to do.
But it gets even better. The mayor of Pittsburgh, Luke Ravenstahl, is fighting a state takeover. I can think of only one reason why he would do this. Political support from those people who benefit from the excess pension benefits. (Yes, excess. They are in excess of what this city can and has been able to afford.)
The state wants to assume the pension obligations from the city. In return, they are seeking some structural reform. That seems sane. Forcing the rest of the tax payers in Pennsylvania to pay for the incompetence of the politicians in Pittsburgh should come with a few strings.
Ravenstahl last night rallied about 100 union workers to back his opposition of a state takeover.
“This bill will affect you,” he told the crowd and those watching on the city’s cable access station. “It will affect you dramatically. It’s not good for anyone, whether you live here or work here.”
It would have been good to address the structural problems back in the 1990′s. It would be good now too. What a clown. But wait, there’s more…
He said a city plan under its Act 47 recovery plan would lead to solvency with no benefit changes, and warned the state’s plan “has widespread changes.”
I’m sorry, but can anyone believe him? This pension hasn’t been properly funded in 20 years and yet without any benefit changes he can lead it to solvency? How can anyone believe that not only will they start breaking even, but will begin catching up?
They can’t. This pension is doa.
The lesson learned here is that there is a total unwillingness by some parties to discuss a reduction in benefits – no matter how absurd the underfunding becomes.
Pennsylvania has four times more pension funds than any other state. I suspect there will be more to write about municipal pensions in PA in the coming months.
Fear Used in Springfield, Missouri
Springfield Missouri has an underfunding problem with their police and fire pension. They are, of course, discussing a tax increase to fund the pension up to the minimum amount. The minimum, not fully funded.
Read the full article: Council puts sales tax proposal on ballot
I’m linking to this article because the people advocating this tax increase are using fear, which I believe will be used quite often in cities and states around the US in the coming months and years.
First off
Springfield City Council voted 8-1 Monday to advance a 3/4-cent sales tax for the police-fire pension fund to the November ballot.
The thing about local sales tax is that it always sounds so small. I hope my readers keep in mind how regressive this proposal really is.
“We will couple this decision … with reforms,” Councilman Dan Chiles promised. “It’s a package deal.”
I will believe this when I see it. Kicking the can down the road is pretty much the only strategy most government entities have implemented for years.
And here comes the use of fear.
“Will we have fewer police officers on the streets? Will some of our fire stations be closed on a permanent basis …. will our streets degrade and what might the consequences of that be?” he said.
and
“I don’t like to pay taxes either, but I don’t want a city I’m afraid to live in,” Rushefsky said.
and
“I don’t know how much more serious it can be,” added Councilman John Rush. “We’re talking about a life-threatening disorder that’s facing our city.”
Wow. FUD. Fear. Uncertainty. Doubt. Nice job councilmen. So it appears the ONLY way the city can hire police is with the existing defined benefit pension plan. In an age where good paying jobs are hard to come by, I have a very hard time believing this.
Let’s hope the voters don’t agree in November and vote this down.
Pension Double Dipping in New York
Some articles make me wonder why I’ve chosen my career path. Maybe I should have accepted that government job instead of starting my own business.
From the article in the times: Some N.Y. Lawmakers Take Pensions on Top of Pay
Mr. Weisenberg, 75, a Long Island Democrat, “retired” last year but continued to work as a lawmaker and remained on the payroll. As a result, he earns $101,500 in salary and collects a pension of about $72,000
He thinks he is entitled to this pension. I think he might be entitled to be voted out of office. As a country we don’t have enough money to properly fund our schools, pave our roads, fund transportation alternatives, etc, but these people think we have enough money to pay them twice – because they’ve “earned” it.
“Double dipping?” said Mr. Weisenberg, asked about the appearance created by his notional retirement. “I don’t see this as that,” he added. “This is something I earned.”
The saving grace for New York is that they seem to have closed this loophole with anyone elected after 1995. Keep in mind though, that this is just the tip of the iceberg. Double dipping is a common practice in New York government (and elsewhere.)
Hundreds of state workers have obtained special waivers allowing them to return to their jobs after retiring and to keep their full pensions.
The theme here is the same as everywhere. I’ve earned my special deal. I’m entitled to it. It is all those other people that are hurting the system. I hope these lawmakers are voted out and embarrassed into changing their behavior. Hopefully this will tarnish their reputation and legacy.
Cities on the hook for millions in promised retirement funds
Just more examples of California pension benefits. I still don’t understand how anyone can think it is good for our country to have someone work for 30 years and then collect a sizable pension for another 30 years. How does that math work without huge contributions during the time of employment? (Answer, it doesn’t.)
The poster boy for those calling to revamp California public pensions is Bruce Malkenhorst Sr., who for 32 years was city administrator, clerk, finance director, treasurer and redevelopment agency secretary for the city of Vernon — California’s smallest city (with a population of just 95, according to the latest state Department of Finance estimates) — and chief executive of the city’s utility, Vernon Light and Power.
Vernon — a 5-square-mile industrial area with only a few homes and apartments and no schools, clinics or grocery stores — paid Malkenhorst $600,000 a year, about twice that of Los Angeles’ mayor, according to a 2007 Forbes magazine article.
While Malkenhorst awaits trial on an indictment claiming he charged $60,000 to Vernon for golf trips, massages and political contributions, he collects a $499,674 annual pension, the highest of anybody on CFFR’s lists.
Poster child is right. Keep in mind it isn’t about the people who are getting these defined benefits, it is about the fact our system of government seems to think they are possible.
A funny statement from this article:
Any changes to such a plan to cut benefits and reduce costs can’t be retroactive.
That’s what they think. Oh sure, we’ll likely increase taxes by 25-50% over the coming two decades in an attempt to not break these agreements, but eventually the people paying for all these benefits will wise up. Defaulting on debts might just become the American way.
