By DAN VALENTI

PLANET VALENTI News and Commentary

Second of Two Parts

(FORTRESS OF SOLITUDE, DEC. 30, 2014) — Virtually alone among local media, THE PLANET has been hammering on OPEB (Other Post-Employment Benefits) for at least four years now, on this site, on radio, and on TV. OPEB refers to benefits other than pensions for which taxpayers are on the hook that contracts demand as due for city retirees. Earlier this year, city officials gave the matter token attention. Supercitizens Craig Gaetani and Terry Kinnas have also also attempted to address the OPEB matter with the city council. Gaetani tried twice.

As we examined yesterday, politicians — We The People’s nominal “representatives” — remain woefully ignorant of and/or disinterested in this ticking time bomb. There are four reasons for this — first, because it is so massive, second because it is so intractable, third because it is so long-term, and fourth, because they themselves are to blame for its creation.

THE PLANET uses the word “blame” purposefully, since it was politicians, negotiating on behalf of taxpayers year after year, who agreed to lucrative salary-and-benefits packages. Choosing convenience and personal self-interest over the collective good, politicians created a situation bound to backfire. The problem was three-fold: (1) It assumed over-optimistic scenarios for city investments, (2) health insurance costs skyrocketed over the course of a generation in which ever-more-generous benefits were allowed and (3) each successive contract built upon the previous one, resulting in a pyramid of perks.

The main component of OPEB as well as its most lethal ingredient is the cost of health care. Initially, when health care switched to HMOs, these costs were marginal, hard as that is to believe today. A plan costing less than $100 a month is now ten times that amount. This increase has saddled Pittsfield, and many other towns and cities across the nation, with an obligation than cannot be met without raising taxes to a level that would personally bankrupt 95% of the city’s residents and businesses. And they would be the lucky ones.

Ignorance is Not Bliss

Outside of THE PLANET and the isolated efforts of citizens such as Kinnas, Gaetani, and Eric Vincelette, Pittsfield has all-but-ignored this problem. When Mayor Dan Bianchi raised it, he did so only in a token manner, proposing a mere $50,000 in the FY14 budget for an OPEB cost that is around $250 million. Add pension costs, and the total taxpayer liability tops $350 million (approx.) — all as of yet unfunded but, short of bankruptcy, will all have to be paid by 2040. Some 25 years stands between now and then, a period in which $350 million will most likely look like the Good Old Days.

Clearly, Pittsfield, like many other municipalities in the state and nation, isn’t serious about its OPEB + Pension problem. Here’s the evidence.

1. The paltry size of the allotment. The $50,000, if the math serves us correctly, is 0.001% of the total amount due as of this moment. Each day, the obligation grows. It buys flimsy technical cover so that the politicians who OKd this amount can truthfully claim they “addressed the OPEB problem.” We hope you will reject any such claim in 2015.
2. When the OPEB allocation came up on the agenda earlier this year, the mayor was on vacation.
3. The city council’s Ordinance and Rules subcommittee tabled a proposal to create a plan on how to deal with the looming financial killer. That’s not what you do if you’re serious about addressing an urgent matter.
4. City solicitor Kathy Degnan created the legal structure of what a trust and board meant to deal with the problem would look like. Enough said.
5. There hasn’t been a serious effort to explain the problem to taxpayers.
6. Quite the opposite. There has been a serious effort to ignore the problem and keep taxpayers in the dark. As Detroit, Mich., Sacramento, Calif., and many other communities found out, when the fiscal end comes, it comes swiftly and without mercy.

All this has left Pittsfield with a problem that will remain unsolvable, given the political dominance of the two political dynasties that have ruled the city post-GE (Del Gallo and Wotjkowski). If in 2015 we elect another from that small favored class, the odds are astronomical that the ignorance shall continue.

Perhaps that will be for the better. Perhaps if another “business as usual” government is elected in 2015, it will hasten the end. The less that is done on a problem far-too-long in the making, the more certain is bankruptcy. As of this writing, declaring “financial kaput” is the city’s most pragmatic solution to the problem — short of revolutionary action taken by a mayor, a city council, and a school committee to implement painful but advisable solutions.

Resetting the Financial Odometer to Zero

Going belly up will cause hardship, but it has one over-riding benefit. Bankrupcy will reset all of the financial indicators in the city to zero. Notably, all contracts will be null and void. All OPEB and pension obligations will be wiped off the books. The city gets a chance to start from scratch.

According to data published by the Pioneer Institute (link in yesterday’s installment), Pittsfield ranked last — 106 out of 106 and graded F in its OPEB + Pension status. Keep in mind that pension obligation must be added to OPEB.

Pittsfield employs 918 people (2013 figures), 14 more than it did in 1999. There were 720 retirees then, a number that rose to 757 in 2013. The average salary + benefits package for employees and retirees from 1999 to 2013 was $39,900 and $53,400, respectively, a gain of 34% in 2013 adjusted dollars. Given a 37-hour work week, this produces an average hourly compensation for city workers of $28.86.

Ask yourself. Is an average hourly compensation of $28.86 and hour for 918 workers sustainable? Is the pension and OPEB package for 757 retirees with equally generous terms realistic? As a rough estimate on what those costs shall be in FY15, add about 10%. Moreover, keep in mind that the city’s population is falling, its tax base is shrinking, its costs are rising, and its income is dropping.

In the past 15 years, from 1995 to FY2015, average compensation for city workers has risen roughly 40%. You who toil in the Dreaded Private Sector locally, has your compensation increased by that much?

We thought so.

Solutions Are There, But Is The Political Will?

If the public gets nothing else out of our two-part series, we hope is it (a) the understanding that this is a real problem that won’t magically go away and (b) when we talk about the rising cost of benefits, remember that to the OPEB costs must be added taxpayer pension liabilities — almost all of which are unfunded!

From the Maryland Public Policy Institute: “When you think about the “gold plated retirement packages” that government employees apparently get, what comes to mind? Probably the pensions. For some reason, these are the focus of most media coverage – perhaps because they are the easiest to understand and discuss. In fact, when I say the words “retirement package” you might only think about pensions. But there are other components to a retirement package, and in many cases they end up costing employers more than pensions. Such is the case for our local governments.”

And this: “If you’re wondering how on earth we let OPEB funding levels sink to such dismal “heights,” the answer appears to be that most counties didn’t start a fund for them until a few short years ago. Before then, OPEB were an expense that could be dealt with on a year-to-year basis. But as the cost of healthcare grows (along with the number of retirees), so does the cost of OPEB. And finally we recognized the necessity of dedicated funds for OPEB.”

Short of bankruptcy, there are solutions. That primary solution is for the city’s key public officials to grow a huge set of political gonads. This would take the form of:

1. Receiving home-rule authority from the state to re-negotiate pension and OPEB packages then doing it.

2. Budget tightening in all city departments, led by the School Department, which eats up 70 cents of every taxpayer dollar.

3. Exploring every avenue to increase income, for example, selling ads on city vehicles and in schools.

If — fat chance, but if — the city elected a mayor in 2015 dedicated to that proposition and that mayor received cooperation from the bargaining units, the city council, and the school committee, by 2019 the matter would be manageable. If not, let all the benefits collapse into Chapter 7, 11, or whatever rules cover cities when they go broke.

Only don’t say you weren’t warned.

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“Been spending too much time away. I can’t stand another day. Maybe you think I’ve seen the world, but I’d rather see my girl.” — The Rolling Stones, “Going Home,” (1965).

“OPEN THE WINDOW, AUNT MILLIE.”

LOVE TO ALL.