PLANET GIVES YOU THE TRUTH ON UNFUNDED LIABILITIES, HOW THE PROBLEM IS WORSE THAT REPORTED, AND THE SCHOOL DEPARTMENT’s CONNECTION TO THE IMPENDING DISASTER
By DAN VALENTI
PLANET VALENTI News and Commentary
(FORTRESS OF SOLITUDE, “BLACK FRIDAY” NOV. 25, 2011) — No. We shall not buy a single item today. We choose to keep our souls intact, to stay out of the consumeristic tidal pull, and enjoy a day for itself (and not for what we can buy). We accept the gift, given.
UNFUNDED LIABILITES: THE PROBLEM IS MUCH WORSE THAN REPORTED
Earlier in the year (Feb. 25, 28, and March 1) we were the first medium locally to put into focus the story of unfunded liabilities city officials agreed to pay municipal unions in the name of you, Mary Jane and Joe Kapanski, the taxpayers.
Using the state’s own figures and those from the Massachusetts Taxpayers Foundation, we told you that:
* Pittsfield is just one of the communities statewide (Lynn, Chelsea) whose unfunded liabilities (promises of future dollars given to public-worker retirees) are funded less than 50%.
* Of the state’s 50 largest cities and towns, Pittsfield is the most seriously underfunded. A full 80% of the $330,725,000 (one third of a BILLION dollars) is under-funded.
* Compounding the red-alert nature of this number are the demographic and economic realities revealed in various studies, including one available on the school department’s website — the population will continue to fall, the tax base is shrinking, welfare and other handouts to the “gimme groups” are increasing, and what jobs are created tend to be minimum-wage, service-oriented positions.
Here’s what’s new. Hold on to your hats, wallets, and take another hit off the Meerschaum. That $331 million is likely FIVE TIMES WORSE THAN REPORTED.
* Slick, slimy bookkeeping and high discount rates are employed to that $331 million liability (what taxpayers owe public-employee retirees) make the number appear lower than it actually is. A 2010 study by Courtney Collins, assistant professor of economics at the Stetson School of Business at Mercy University, and Andrew Rettenmaier of the National Center for Policy Analysis, examined 153 state and local pension plans. They recalculated the pension numbers using more accurate, more realistic, and less rosy economic assumptions (chiefly, the expected costs of future health care). Their study shows that unfunded pension liabilities typically exceed the numbers reported by states and communities by a factor of five.
UNREALISTIC ASSUMPTIONS ON HEALTH CARE
* Nationwide in 2010, states and towns listed $493 million in unfunded public-employee liabilities. The Mercy study showed the actual number (based on more accurate projections) to be $2.5 trillion. When all benefits are included (not just pensions) the number is $3.5 trillion.
* Pittsfield $331 million liability — again, an obligation taxpayers must pay unless the system is reformed and the rules are changed — is an unrealistically low number, as bad as it sounds. The city assumptions on future health care costs were underestimated. That’s one of the smoking guns here. Pittsfield assumed an annual rise in health care of 5%. The actual increase in Massachusetts for the last five years has been 12%. Pittsfield’s actual health insurance costs recently have been going up at about 15% — TRIPLE the estimates made when they projected future pension and health-care liabilities.
Consequently, the obligation of the Pittsfield taxpayer as the unlucky insurer of this debt is much greater than the $331,000,000 reported by the state. If health care costs continue to rise disproportionate to inflation and the cost of living, the actual number could approach $1 billion.
There is only one solution to this: In the name of poor taxpayers, the city must redefine its benefit obligations for public employees. Without doing so, the city faces a near-certain financial disaster within a few years. Whether it’s as soon as five or as “far off” as 20, it will come. The fiddler will come down from the roof and insist on payment.
PUBLIC EDUCATION IS THE SINGLE LARGEST CONTRIBUTOR TO TAXPAYERS’ WOES
The Pittsfield School Department is the highest contributor (and worst offender) to the problem of unfunded liability, since it has and will continue to have the largest number of employees and therefore the biggest number of retirees. It is the largest city department. It easts up 2/3 of the city’s budget. The benefits the teachers unions squeezed out of the city these past 25 years, when people stopped paying attention, have been ruinous.
Our earlier analysis (from a couple days ago) showed the average compensation (salary and benefits) for the many hundreds of teachers in the city’ system is $72,000. Pro-rated to a full work year and not the half year they are contracted to work, we pay on average the equivalent of $145,000 a year to each teacher. But it is the future benefits that will ruin the city if something is not done.
DESPERATELY NEEDED: TRANSPARENCY IN THE SCHOOL DEPARTMENT
One would hope for transparency from a department that consumes two of every three dollars extracted from taxpayers. That’s not the case. THE PLANET encourages you to take time roaming about the school department website. We ask you to try and find something meaningful and not fluffy-wuffy, say, Supt. Jake Eberwein’s response to the state’s withering letter to the mayor on Sept. 7 that the school building needs committee presented a poorly written, unspecified, fuzzy plan that completely excluded public input.
We wish you better luck than we had in your search.
We reported on Nov. 14 the contents of state’s letter: The state told the city that its plan was not shared with school department staff, that no public input was sought, that the information was not tied to a labor market analysis, that there was no specific plan for electronic technology, that the city failed to provide relevant data in a number of areas, and the like. To this date, the Boring Broadsheet still has not shared this with the public.
No where on the school department website or on the city’s site, for that matter, is there the slightest indication that the state’s concerns have been addressed.
The members of the school building needs commission have been silent. The mayor’s office has been silent. The school department has been silent. The BB? Fuggitabowdit.
DAN BIANCHI AND SCHOOL COMMITTEE-ELECT: DO SOMETHING ABOUT IT
We challenge Mayor-elect Dan Bianchi to keep his promise of transparency in government. We advise the mayor-to-be to make a clean-up of the school department his TOP priority. (Let us define “cleanup”: More productivity as a lower cost, beginning with a top-to-bottom forensic audit).
We also challenge the incoming school committee to begin to address the causes of the sinking ship. Again, the ship eats two of every three dollars but the product is substandard.
We keep hearing from teachers unions, administrators, and politicians that “the children” need more money. That’s their solution: Give us more money. And despite the fact that this hasn’t worked since the beginning of so-called Ed-Reform in the state (1993), they keep coming for more, and, because apathy keeps so many voters away, the Special Interests rally their core and scare enough other voters to win every time. Until that changes, and until we say no to “more money” and “yes” to smarter policy, Pittsfield’s continued economic decline will continue. No amount of artists or restaurants or theaters will jumpstart THAT economy.
MORE MONEY FOR SCHOOLS ACTUALLY HURTS THE ECONOMY
Speaking of money, President Obama’s Council on Economic Advisors issued a forecast on the effects of $100 billion in economic stimulus money given to the public schools nationwide (each one a dollar stolen from taxpayers).
The $100 billion came (and comes) with a promise from the local school districts NOT TO REDUCE THEIR K-12 SPENDING. The president’s council argues that this money will boost U.S. economic growth. Sounds good, except THE PLANET raises two objections:
(1) This spending and the proviso that the local districts not cut education $$ proves our theory that money doesn’t make a difference after some level of necessary funding. Notice that the President doesn’t make an educational argument for the money but an economic one. In short, Obama’s council wants to employ public education as a delivery system to foment economic gain, not educational performance gain.
(2) The council ignores reality. Throwing more dollars at public schools impeded economic growth. For example, a July 2008 study from the Journal of Policy Sciences shows that “spending more on public schools hurts the U.S. economy.”
How so? That’s tomorrow’s post, plus a discussion of methadone.
UNTIL THEN, MY DEAR FRIENDS, I BID YOU ADIEU, WITH LOVE AT MY ELBOW, SMILING ALL THE WAY …
“OPEN THE WINDOW, AUNT MILLIE.”
LOVE TO ALL.