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Fear Used in Springfield, Missouri

August 25, 2009

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

August 21, 2009

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

August 15, 2009

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.

Pension Payments Could Mean Cuts in Chicago Schools

August 13, 2009

From an article here.

By state law, CPS has to pay over $300 million to its pension fund this year. That’s a 73 percent increase over last year. And next year CPS says it will owe over a half billion dollars.

From $174 million in payments last year (2008) to $500 million next year?  Ouch.  That will leave a mark.

Schools chief Ron Huberman says he wants the state legislature to limit how much the district’s obligation can increase from year to year.

There are only three ways to limit the district’s obligation

  • borrow money
  • place the burden onto the taxpayers of the state (basically distributing the costs of Chicago Public Schools to the rest of the state)
  • reduce benefits

I hope to god he is not advocating the borrowing of money.  Debt is what got us into the predicament the United States is in.  More debt won’t get us out.

I highly doubt he is advocating for a reduction in benefits.  Maybe he is, but I doubt it.  This leaves placing the burden on the rest of the Illinois tax payers.  Socializing losses seems to be all the rage these days, so I suspect this is what he means.

HUBERMAN: There’s not one pot of money for classrooms, after-school programming, sports—the things that matter most to our students—and another pot of money that’s for pensions. It’s one big pot of money. And when you take a look at that big pot of money—every dollar that goes into a pension is a dollar that doesn’t go into a classroom.

And this is exactly what I fear.  We will almost certainly decrease our commitment to educating students in order to pay the benefits we promised to retired people.  How we possibly thought we could have people work for 30 years and receive a significant pension for another 30 years is beyond me.   All these problems were masked by the baby boomer bubble and will come to light as they begin to retire.

CalPERS actuary: Pension costs are not sustainable

August 13, 2009

This new article is almost humorous in how tragic the situation is for CALPERS.

The CalPERS chief actuary says pension costs are “unsustainable,” and the giant public employee pension system plans to meet with stakeholders to discuss the issue.

It’s about time the actuary says this.  Many people have know this for a long time.

Ron Seeling, the CalPERS chief actuary, described the process used to “smooth” the rate increases that will be imposed on the 1,500 local government agencies in CalPERS in 2011 in the wake of the stock market crash.

This seems smart enough.  If they were to immediately raise the rate, it would likely cause even more hardship for the cities.  I don’t actually agree with it since I think cities need to face reality now, not have the can kicked down the road for them.  But it gets better….

Instead of a rate increase of 4 to 20 percent of pay, the smoothing will reduce the rate hike to a more manageable 0.5 to 2 percent of pay.

Wow.  A smoothing function that reduces the rate increase by 10 times?  I’d like to see the projections for this into the future.  At what point and by how much are they expected to rise?

Keep in mind, these are payments being made into a fund in order to cover future obligations.  We’ve made promises in the past (well, politicians and bureaucrats have made promises) to make payments in the future.  Remember, pensions are debt.  So what is happening is we’re delaying the funding – basically we are using debt (by delaying the rate increases) to make payments on the fund that will pay our debt.  Can we have more use of debt?  At some point we either need to make these payments or default.

“We are facing decades without significant turnarounds in assets, decades of — what I, my personal words, nobody else’s — unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan (police and firefighters) … unsustainable pension costs. We’ve got to find some other solutions.”

I like his honesty.  Unfortunately he says “pension costs” when it would be more accurate to say “the benefits we promised and continue to promise.”  But yes, he is correct, we have to find other solutions.

CalPERS: a looming disaster?

August 8, 2009

A debate between two pension experts on the LA Times opinion page.

I’ll let you read the short “debate”.  It is interesting to me that the “pro pension” person recognizes the coming baby boomer retirement bubble without recognizing that it was this same bubble that caused pension funds to appear healthier than they were in the past.

Government pensions are toast.  We over promised.  Simple as that.

Promises with a Price

July 26, 2009

This is a report from 2007 by the PEW Charitable Trusts – Promises with a Price.

What is important is that states were already starting to underfund their pensions – and this was during the BOOMING realestate and stock market bubble.

As noted by the report

In the late 1990s and early 2000s, when half the states’ pension plans were fully funded, many states reacted by increasing benefits.

Also

In the past 10 years, only about a third of the states have consistently contributed the full annual amount their own actuaries said was necessary.

You can only imagine the difference that exists now between the obligations we have promised and the pension fund abilities to pay those promises.