UPDATE: ‘PUBLIC SERVANTS’ SERVED ON US A LOT OF DEBT AND OBLIGATIONS … PENSIONS, OPEB READY TO BRING THE OTHER FOOT DOWN ON MASSACHUSETTS CITIES … PITTSFIELD UNFUNDED OPEB LIABILITY $330 MILLION +, BUT POLS NOT WORRIED … IN LEE, SELECT BOARD PLAYS CYNICAL GAME WHEREIN TAXPAYERS WILL LOSE
By DAN VALENTI
PLANET VALENTI News and Commentary
(FORTRESS OF SOLITUDE, WEDNESDAY, FEB. 20, 2013) — We shall squeeze one more day out of our column on pension and OPEB debt, future obligations negotiated by our “public servants” with the bill due to taxpayers. In Pittsfield, the sum is at least $330,725,000. That was the figure as of 2011. We don’t know if the city has been current with its obligations in the meantime. Assuming that it has, that’s the figure.
Again, this money has to come from somewhere, unless there is major pension/OPEB reform and/or a radical development such as bankruptcy.
Here is an interesting analysis taken from a Reuters article last month:
Almost universally, cities have failed to pre-fund the commitments they have made for retiree health care. In total, cities have pre-funded only 6 percent of their healthcare promises, leaving a shortfall of $118 billion, according to Pew. In contrast, cities have funded 74 percent of pension liabilities, leaving an unpaid balance of $99 billion. In fact, 22 cities face larger unpaid bills for retiree health care than for pensions (page 16).
The answer? There are three solutions: litigate, negotiate, or bankruptcy. This is the situation taxpayers, and the future of cities, has been put in by short-sighted politicians and public employee unions bent to grab every cent they possibly can.
This is one of the largest issues the city of Pittsfield faces in this election year. Educate yourself on it, as THE PLANET is helping you to do, and let politicians and candidates know that you expect a position in this year’s campaign. If they argue, put the blame on THE PLANET. That’s cool, because we are the cause of everything in the city, if you listen to our critics, whom we love, because they know what’s wrong with every pronouncement we utter!
(FORTRESS OF SOLITUDE, TUESDAY, FEB. 19, 2013) — With hundreds of millions of dollars owed to current and future retired city employees, Pittsfield taxpayers join many other cities across America in a dangerous financial game. It is a game created by greed, public apathy, political cynicism, and the penchant for those in public service to live in Fantasyland. Such are the dangers with “public money.”
Something inimical happens to capital once it leaves private pockets and ends up in public hands.
According to the Boston Business Journal, as of January 1, 2012, Massachusetts had an unfunded public-benefits liability of $23.6 billion. The figure represents a doubling in just five years. The startling gap can be attributed to a variety of factors, including:
* An investment loss of 30% during that time
* The pyramid of benefits negotiated by public employee unions with the help of weak and ineffectual politicians
* The growing number of public employees opting for early retirement
* The longer life spans of retirees.
Funding Gap Proves Current Situation is Unsustainable
All of this has left the state with a deficit (funding gap) of 35%. That $24 billion+ will be due from taxpayers sooner than you realize — unless there is legislative reform. Other states have bitten that bullet, but in Massachusetts, public employee unions, especially teachers unions, have Democratic politicians in their pockets.
Reasonable reform would include three strategies:
1. Reduction of benefits.
2. Requiring employees to work until 60 to retire (five years longer than the present 55).
3. Requiring future hires to work longer to reach maximum pension benefits.
Teachers’ unions have, on cue, opposed all three measures. They have dictated their displeasure to the politicians that they own, 85% to 90% of whom are Democrats.
The gravy train has to be over, or it will be Deep Six for the state’s economy and those of many of its cities, including Pittsfield. There is no desirable future for the next generation in that scenario. For once, “it’s for The Children” actually means something.
Prior to 1983, unfunded pension liabilities were not an issue. Massachusetts taxpayers satisfied their pension obligations for public workers on an “as-you-go” basis. In the early 1990s, the state finally adopted a funding schedule for those obligations. By 2003, though, huge shortfalls began to show up. Monies that would have been earmarked on a pay-as-you-go basis were used to expand government in a variety of unsustainable ways. The money that should have gone to fund the obligations proved too tempting in the short-term for politicians.
That type of money will inevitably do that. As we said, once money leave private pockets and ends up in the public treasury, elected and appointed officials think of it as “their” money — so much Monopoly Moolah to be frittered away as they please, We The People be damned. Pittsfield only need recall the financial mess conjured up by Gerry Doyle, David Kiley, and Bob Tone in the late 1990s.
Teachers: ‘Pension System a Good Deal for Taxpayers’
By the early to mid-2000s, the financial shell game was on, and as long as the stock market kept going up, the economic foolishness could be covered, good paper after bad. When markets began their inevitable adjustment, however, public officials and greedy unions were exposed. The huge unfunded obligations turned these commitments cyclic: Markets adjusted, anticipated (phantom) profits were lost, and bond rating as a consequence suffered. Lower bond ratings made borrowing more difficult, which fed into downward profitability … quite a circle.
The Massachusetts Teachers Association, of which THE PLANET is a member, recently had this to say about the system: “The pension system is a good deal for taxpayers. There is no justification for cutting future employees’ pension benefits.” Easy for them to say. In Pittsfield, the average teachers’ compensation (salary + benefits) is $70,000 a year. Teachers can retire on 80% of salary for their three highest earning years. In a perfect world, teachers and every other employee, private and public, would have such great deals, but, as you have probably experienced, the world is far from perfect.
In fact, taxpayers are on the hook not just for pensions but also for all other benefits, including health insurance, life insurance, and other taxpayer-funded charity negotiated on a local basis. These total obligations are referred to as Other Post-Employment Benefits (OPEB).
The Massachusetts Taxpayers Foundation calls this evil cycle “The Brick that Broke Municipalities’ Backs” (here’s the link: http://www.mattmacdonald.com/wp-content/uploads/2011/04/11-02-Retiree-Health-Care-The-Brick-That-Broke-Municipalities-Backs.pdf). According to this study, as of two years ago, Pittsfield had an unfunded OPEB liability of $224,749,000. Unfunded pension obligations add another $105,976,000 onto the taxpayers’ back. Adding these two (OPEB + Pensions) puts the bill to Mary Jane and Joe Kapanski at $330,725,000. Two years later, that amount is even higher.
Without reform, $330,725,000 + one more year of unfunded commitment (not yet tabulated) is the current tab all owed by Pittsfield taxpayers. Without reform, that full amount has to be paid. The money will have to come from somewhere. If the state borrows it, there will be interest to pay on top of principle.
Using the $330,725,000 for Pittsfield’s current population of 40,000 derives a per-capita obligation of $8,268.12. If you eliminate children and those who cannot pay (social misfits such as gang members, druggies, welfare deadbeats, and the rest of the gimme crowd, plus senior citizens living on fixed incomes), you probably have about 10,000 people who will be stuck with a per-capita tab of $33,072.48. Not exactly chump change.
Clearly, the pyramid of benefits that spineless politicians handed to public employee unions over the last generation:
(a) Have put countless cities and towns in serious danger of bankruptcy, including Pittsfield.
(b) Are clearly unsustainable.
Bankruptcy may in fact be the best practical solution, if serious reform does not happen soon. In bankruptcy, the state assumes receivership, with a local board, similar to the state-appointed oversight board appointed following the near-collapse of Pittsfield finances during the Doyle Administration. Incidentally, if memory serves, Dan Bianchi, then Ward 6 councilor, served on that board, so as mayor, he brings experience in this darker side of municipal finances.
One-Party Rule Kills Chances of Reform … Solution? Elect more Republicans
Unfortunately, the solution — serious pension reform and renegotiation of contracts — lies in the hands of politicians, and, in Massachusetts and Pittsfield, in the hands of pols who “enjoy” one-party Democrat hegemony, which they use to bully the Little Guy and reward the fat cats, the players, the special interests, and the GOBs. Until there is a well-functioning, bicameral government on state and local levels, there’s not much hope for cities like Pittsfield. Critics will misread our statement and accuse THE PLANET of being a closet Republican or at least a GOP shill. We remind one and all that we do not play favorites with two-party politics. We loath Democrats and Republicans with equal fervor.
Fortunately, if we can use that rosy word in such a dire context, events could well spiral out of control, so that even the most cynical, lily-livered politician will have no choice but to cave in to fiscal reality, no matter how much pressure the unions exert. Until that happens, however, those who negotiate public employee contracts, on both sides, will pretend there’s no crisis and that it’s still 1958.
You know, the oft-repeated Pittsfield manta that “Everything is OK.” Corydon is “excited,” the mayor is “optimistic,” and the School Department is “proud of its accomplishments.” Bring on the dancing girls, pop the champagne corks, and call the roller of fat cigars!!
Even when politicians are forced, kicking and screaming, to acknowledge the need to do something, they are quick to speak in code to public union officials, who possess special decoder rings to interpret the message. It may look to taxpayers as if the pol is making hard fiscal choices, but the secret message is the same: Why tighten the belt when we can keep raising taxes on the unwashed masses?
For example, take Lee — please.
In a recent meeting of the town board, Lee selectmen created a new option for itself in negotiations with town employees over the budget-killing cost of health insurance. Terrified selectmen, though, revealed their true intent in the aftermath. It’s clear: Lee voted to adopt sections 21-23 of M.G.L. 32B. This is the state General Insurance Commission (GIC) plan. This is the taxpayer-friendly provision already in place in Pittsfield because Mayor Jimmy Ruberto put it there. The measure allows cities and towns the option of freely switching health insurance plans for employees without the need for collective bargaining.
No sooner than the Lee Selectmen acted than two predictable things happened:
1. The teachers’ union protested.
2. The politicians retreated.
In these two actions, it became clear that the selectman were playing a jaundiced game: They voted in MGL 32B with no intention to use the provision. Why do it, then? To fool taxpayers and lull them into thinking that their representatives were, you know, actually trying to represent them. Even Pittsfield showed more courage.
‘Profiles in Courage’ Squeak Out
Dig these remarks:
Ginger Rogers (we kid you not), head of the Lee Education Association, warned of gloom and doom if the select board were stupid enough to try to save taxpayers money. “You don’t need this plan,” Rogers assured them.
Think selectmen got the message?
“Just because we vote tonight to do it doesn’t mean we have to follow through with it. I won’t vote to take it to the max that the law allows us to do. … I don’t think that’s fair to the employees.” — Selectman Gordon Bailey. What about what’s fair to taxpayers, Gordie?
“Nobody’s out to hurt anybody. We’re just trying to do what’s best for the town and what’s best for [the teachers]. — Board Chairwoman Patricia Carlino. You don’t think taxpayers will be hurt if you don’t save them some money, Pat?
Selectman David Consolati voted for the provision and then immediately said he did so reluctantly. Yeah, Conso, they twisted your arm, you “Profiles in Courage” you. As for Town Administrator Bob Nason, he made with The Wallenda, trying to walk the tightrope to please everybody. Nason said he wanted a less expensive healthcare plan for taxpayers but one that would be more generous than GIC provisions. “We’re hopeful that the price will fall somewhere between our current plan and the GIC.” You want to keep the cake without eating it, in other words.
With all this, we conclude with this snippet taken from Yahoo News!
Today, many of the companies contributing to the pensions are struggling with the costs but don’t offer defined benefit plans to new workers.
According to the most recent statistics by the U.S. Department of Labor, the number of defined benefit plans fell to 46,543 in 2010 from 103,346 in 1975. Many of the largest companies are still carrying the funds on their books. Consulting firm Towers Watson (TW) tallies 584 of the Fortune 1000 companies had defined benefit plans at the end of 2011, down from 633 in 2004.
Andrew Liveris, chief executive of Dow Chemical Co. (DOW), which posted a loss of $716 million for the fourth quarter, said the company faces a “massive pension headwind” because of the change in the discount rate that added $2.2 billion to its pension liability. Pension expense this year is going to rise between $250 million and $300 million.
“Other companies have got it, and so we’re not alone, but clearly those are big numbers for us,” Mr. Liveris said.
Overall, pension plan funding fell by $79 billion last year at about 400 large companies with defined benefit plans, according to preliminary estimates by Towers Watson. The total estimated deficit at those firms now stands at $418 billion, 23% more than in 2011, and the highest since the firm began tracking.
Companies, which by law must keep defined benefit pension plans funded within a certain period of time, are taking a variety of paths to address the issue. They are buying out pensioners, unloading pension accounts to third parties and upping their contributions.