PENSION REFORM, LIKE OPEB, A MUST FOR PITTSFIELD, OR IT’S FISCAL ‘CURTAINS’
By DAN VALENTI
PLANET VALENTI News and Commentary
(ED. NOTE: We close out this year with a final column on the looming “unfunded liability” crisis threatening to swallow Pittsfield. We began with a two-part series on the OPEB problem. Today, we take a closer look at the pension situation. Be advised that this will be our final post of 2014. We will next form up on Monday, Jan. 5, 2015. See you then. Happy New Year to all!)
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(FORTRESS OF SOLITUDE, DEC. 31, 2014) — On Monday and Tuesday, THE PLANET exposed the looming OPEB problem. Taxpayers face an unpaid $250 million bill if they are to keep promises made on their behalf, and without their knowledge, to city employees and retirees. The figure doesn’t include pension obligations, $105 million of which are not yet paid.
In the Dreaded Private Sector, pensions have become a thing of the past. It’s not because employers wouldn’t want sugar and snowflakes for everyone but because they couldn’t afford it, competition in the global marketplace and all.
The public sector pension system, unless reformed or addressed in some other way, will collapse under its own weight. At that point, all pensions will be lost. Consequently, the ones who have the most to gain are the pension recipients themselves.
Pension reform, that is, relieving taxpayers of promises made by politicians in bad faith and in secret, will achieve the following. It will:
- Greatly enhance the city’s financial condition.
- Reduce the risk of bankruptcy.
- Strengthen the integrity of the bargaining process.
- Help assure that taxpayers’ commitments to public employees are kept.
- Establish new retirement plans that are defined and therefore predictable.
- Remove some of the risk that taxpayers have been forced to shoulder on the financial performance of pension funds.
- Introduce new levels of accountability from pension plans and their managers.
- Allow beneficiaries greater control over their retirement funds.
- Remove absolute control of pension funds from all-powerful individuals.
Prediction: As the pension crisis grows more acute, the city’s politicians will be in the throes of an evil combination: Desperation and expediency. They will be tempted to borrow money to meet rising pension obligations. Other cities have succumbed to this temptation through the issuance of bonds (Nashville, Tenn.; Hamden, Conn.; Portsmouth, Va.; Ft. Lauderdale, Fla.; and Oakland, Calif., for example). The moves have proven risky and have worsened financial situations, even leading to municipal bankruptcy.
In Stockton, Calif., city officials, rather than face the issue through pension reform, decided to borrow money to inject into its pension accounts. The move backfired when the pension funds tanked, done in by a recession, an increased number of retirees, and the awarding of extra benefits in contract negotiations.
Seven years ago, Stockton issued $125 million in pension bonds, investing the money in the state’s pension fund. The funds were invested poorly, and the move cost taxpayers $25 million. After that staggering loss, Stockton taxpayers were still obligated to pay back the full amount of the bond plus interest. The setback forced the city to file for municipal bankruptcy under Chapter 9.
“Pension bonds put ‘the burden of payoff onto the next generation,’ said Marcia Fritz, executive director of the California Foundation for Fiscal Responsibility, a group that has tried through reforms in a state that has been at the forefront of the issue” (from USA Today, article by Duane Gang, reporter for The Tennessean in Nashville).
From Barry Koslow is president and CEO of MKA Executive Planners, an executive benefit and retirement planning firm based in Woburn.
The public employee retirement system is buckling under the stress of providing government workers with pensions that equate to a significant share of their salary from their highest earning years.
In Detroit, the unfunded pension liability was a key driver in that city’s bankruptcy filing. Here at home, the Massachusetts Taxpayers Foundation reports that state and local governments in the Bay State have set aside only $63 billion — 43 percent — of the $146 billion needed to meet pension and health obligations for current and future retirees.
Our state’s current path to retirement funding, and that of virtually every other government entity, is wholly unsustainable and without dramatic reform it will mean empty coffers that ultimately could leave public retirees lacking sufficient resources.
So what is to be done?
First, the entire public pension system must be dramatically overhauled to more closely mirror the private sector model. Public employees should be fairly compensated in retirement after dedicating their careers to the public, but the current system is richer than the taxpayers in any jurisdiction can afford.
Second, with the knowledge that 401(k) savings will not be enough for many retirees, retirement vehicles such as annuities should be provided as both a workplace benefit and a supplemental option. In the same way that employers offer a base life insurance plan while giving employees the option to purchase supplemental coverage, the same could be provided with retirement income plans.
Third, retirement age can not be the elephant in the room. When the average life expectancy was 70, the typical individual retired at 65 and had to worry about having enough money for five years on average. Life expectancy is now closing in on 80. Many seniors are vibrant and active for many years beyond that. We can not ignore that the retirement age has not risen along with life expectancy. Another reason to extend retirement age is that, as the baby boomers age, the workforce is shrinking and needs to retain experienced workers.
We don’t have enough money to fund our retirements. The truth is undeniable both as taxpayers who fund public retirement and as individuals. We need honest, open dialogue to address this gap, instead of the blinders we have been wearing as a comfortable retirement slips from our grasp. (Boston Herald, May 14, 2014).
From
Pension obligation bonds allow scared, timid politicians to put off the problem to the future rather than face it today by requiring the bargaining units to accept tough medicine. When the bills come due, they will only be larger and the problem will only be much worse.
Pension obligation bonds — Remember that phrase, because it’s all but certain that Pittsfield will try to go that route sometime in the next four years. Bad move.
In the past six years, pension and health care costs for municipal employees across the state have risen 23%. In Pittsfield, that figure is even higher.
The numbers are not good, and, as presently constructed, the city’s government as represented by its elected officials, is too frozen with fear to warrant any pragmatic basis for hope. THE PLANET does offer this ray of brightness, however tiny it may be: 2015 is a municipal election year, one last chance to make a change at the top for the better … or not. If yes, there is a sliver of hope. If not, as Mel Allen used to say, “You can kiss that one goodbye.”
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“Mama, shake that thing.” — Ray Charles, “What I’d Say,” (1965).
“OPEN THE WINDOW, AUNT MILLIE.”
LOVE AND HAPPY NEW YEAR TO ALL.
Re: It must be nice to be “Smitty” Pignatelli, Ben Downing, et al!
The members of the Massachusetts Legislature are going to receive a large pay raise (between $3k to $4k per year) next week (January 7, 2015) from outgoing Governor Deval Patrick, despite a state government budget deficit around $750 million. This shows the legislative priorities on Beacon Hill! While the state government is way behind on its revenues, the politicians are getting their wallets filled with more taxpayer dollars.
– Jonathan Melle
To read more, please go to: http://www.bostonherald.com/news_opinion/local_politics/2014/12/baker_decries_raises_for_state_lawmakers
Sounds like if you are a Pittsfield pensioner you should start worrying. If you are a Pittsfield taxpayer you are already worrying. If you are a Pittsfield taxpayer AND a Pittsfield pensioner, uh, well good luck. If you meet both these criteria and are also a Pittsfield homeowner, ah, er, never mind…have a nice day.
Does the Planet realize that the employees have made deposits for many years instead of paying into social security…… this is employee money not ‘taxpayers’…. except the city hasn’t lived up to its end of the deal…..and local governments in Massachusetts that participate in a government pension program don’t have to pay the matching FICA that goes into SS….. these are your families and neighbors.
SHH
Yes, we do realize it, and we thank you for your valued input. Employees pay a small % of their salaries into the pension system. They do not pay into Social Security. In the Dreaded Private Sector, the government steals a portion of every paycheck for an entire working career to put into a SS trust fund. For the score of years that I was an employer, the portion was higher than that which municipal employees pay for pensions. I would have much rather kept the government out of my pockets and let me be adult enough to manage my own investments, of which I am fully capable. THE PLANET would further add that the money city employees put into pension funds is indeed taxpayer money. That’s where salaries come from in the first place.
When I worked for the City(I no longer do), they took 12% out of my pay every payday and I also had a Medicare deduction . I dont know about you but 12% is not a small percent. I am now paying into Social Security in the dreaded private sector at half that rate.I am just saying
THIS COMMENT HAS BEEN REDACTED. — WEBMASTER
I understood that pension crisis happened when trustees (employers/municipalities) use the funds for non-pension purposes.
In addition, we understand from the Probation Patronage scandal on Beacon Hill that State well-connected employees were allowed to promote themselves to higher pension paying positions just prior to retirement which also constitutes abuse.
Pittsfield will not be issuing bonds. I’d purchase tax-free Nashville bonds any day, but who beyond the issuers consider a tiny city’s?
*crises
Great point, CHAS. There was dipping into the trust funds to use for other purposes. The city also did something of the sort in the late 1990s, when it took money intended to pay health insurance premiums and used it for other purposes. It resulted in a near-catastrophic loss for the city and put the muni budget under state control. This is not to suggest there is anything of the sort going on with the city’s pension funds, but on the other hand, neither THE PLANET nor citizens (nor employees and retirees) know that definitively. Stranger things have happened. Pensions funds accrue huge amounts of money, and where there is Big Bux, there is great temptation. As for bonding, you wouldn’t purchase Pittsfield bonds nor would I, but if they were floated as junk (buried in the fine print) and issued with hints or promises of big rates of return, greed will take over for a number of otherwise decent people. That’s how the financial crisis of 2008 began, when all of those too-good-to-be-true mortgages turned out to be just that.
Thanks, OLGA. I was referring to my obligations as an employer, where I paid in for my employees and for myself.
for my public pension, the % I contribute is equitable to social security.
Happy New Year Dan and the Planet
Same to you and yours, MAGIC!
Every time I go into a store I seem to get hung up waiting for the people in front of me at the register to pick out their lottery tickets. If the state would allow Pittsfield to run its own lottery we might be able to reduce that deficit in a few short years.
Of course that assumes the unlikely event that it would be honestly managed in Pittsfield.
Made myself laugh out loud
Right, D. With the current philosophy of government (higher taxes, more spending for Special Interests), more government revenue means more hardship for We the People. I keep saying this and shall until the end — the city needs a Game Changer, someone who is won’t be bought off, who isn’t afraid to take the needed actions, and who is intelligent. Is there such a person out there who will run for office and then win?
Dusty I think your on to something. Why stop there, they should allow all sports bets at lottery sites across the Commonwealth. Of course all the revenue would go to the city and towns for education. Its for the children after all, put the house on the Pats, its a win win.
First, HAPPY NEW YEAR DAN. I hope the Planet stays as vibrant and as relevant in 2015 as it was in 2014.
Second, pension reform requires funding the current obligations using conservative assumptions about fund return and creating fewer if any obligations. Non profits have the option of creating “403b” plans which is exactly what most universities have done. These are exactly like 401k plans except you can’t borrow the funds. Most university employees find these plans to be the primary support of their retirement.
Thanks for your expertise, CT. (a) Conservative assumptions on investments and (b) no new obligations. Wise measures that require political will. Unfortunately, Pittsfield is and has been in the grips that assumed unrealistic returns and created many new obligations. But most of all, a very Happy New Year to you and yours!
Happy New Year Dan, and thank you for all your hard work. I am, as are many others, would be in the dark about all the deception that is going on in our once proud city. Have a great night and keep up the good work.
Likewise DV. Without The Planet not only would citizens be in the dark but also you have lit a fire under the other media to an extent.
Have noticed that you are determing a lot of coverage patterns and have a subtle influence on office holders.
Advice, don’t run for office. Keep doing what you’re doing, you are a force. Haooy New Year and thank you for The Planet.
The thoughts and encouragement are much appreciated, T-Bone.
oops … meant Happy.
I often wonder if municipalities like Pittsfield sets their fiscal budgets based on the economic formulas used by the state government for funding public education, public safety, transportation, and other programs. If Pittsfield cut its spending on the local level, would that result in a cut in funding by the state government? Or, if Pittsfield excessively increased its spending on the local level, would that result in the state government excessively cutting funding based on the economic formula used for financing public education? Do local governments like Pittsfield have a choice about its fiscal budget? Or, do state government administrative economic formulas dictate what municipalities like Pittsfield have to budget for its public services like public education, public safety, transporation, and other programs? On top of the state government’s economic formulas, there are federal government economic formulas the state governments must follow. The state governments administers federal funds based on economic formulas. The federal government has been cutting its funding to state governments, such as are rotting public infrastructure and deferred maintenance. The state government, in turn, cut its funding to the local governments. However, all of the economic formulas remain in place. I have never managed a government agency, such as the Department of Education, but I understand there are financial mandates that impact state and local budgets.
“Another year over and a new one just begun”
“Let’s hope its a good one”
– Lennon
Deeper and yet to be Deeper in debt. The Walls are crumbling. Mayor do nothing is piling it on the taxpayers. Hell of a way to begin a New Year.
Howie Carr is returning to WBEC 1420 1 5 15 3:00 PM welcome back Howie between the Planet and his followers on the internet and Howie taking calls in the PM hours we may have a chance to get the truth out to the people of Pittsfield. Happy New Years !!
Thanks, RK!
Mayor DAN BIANCHI on PITTSFIELD POLITICS in 2015 –
“Looking ahead to 2015 and beyond for Pittsfield”
By [Mayor] Daniel Bianchi, Op-Ed, The Berkshire Eagle, 1/1/2015
PITTSFIELD – This is the time of year for thoughtful reflection. One year ends and a new one begins. Many individuals will consider the past 12 months with great seriousness, regretting certain things, cringing at particular actions or statements made, wishing they had a specific day they could do over again. Life doesn’t work that way.
I am not wise enough or vain enough to think that I could suggest how someone else should lead their lives. Perhaps the best that any of us can do is to hope that we do enough good things that serve as positive examples to others, whether they be our contemporaries or members of a generation of people in a position to effect the distant future.
For me, I will take inventory of the past year. I’ll make a New Year’s resolution to do better or be wiser in the future. I will also attempt to look at the positive things that I have initiated,participated in, or influenced. My goal will be to do more of that in the future.
I have learned that much of the work that a leader does will benefit people he or she will never know, people of future generations. I have thought a great deal about this concept as we face a variety of decisions in 2015.
Do we bother to invest in the future or hold the line for folks right now? Perhaps we do a combination of both.
A commitment was made to pursue a very forward looking initiative, an innovation center on the William Stanley Business Park. When completed, that center will give our small- and medium-sized businesses engaged in the applied materials, life sciences and plastics sectors access to advanced research and technology. This will enable them to grow their businesses, employing additional people from not only the next generation, but from this one as well.
Investing in a new high school may not seem prudent given a stagnant regional economy and the recent population trends for Berkshire County. A new comprehensive school is, however, an economic development initiative as well as an educational initiative. With rigorous academics, and well-developed programing, a new high school will provide businesses with the employees of the future.
It will be incumbent that a closer partnership be developed with our regional higher educational institutions, BCC and MCLA. Courses in advanced manufacturing and custom sciences at these institutions will further satisfy the need for more advanced training for the workforce of tomorrow, while providing reasonably priced higher education for Berkshire families. These advanced capabilities will allow businesses to development more sophisticated materials, cutting edge applications and advanced products.
In 2015 our energies will be committed to the final stages of the downtown streetscape, a new beginning for the Common, a promising planning phase for the Morningside neighborhood, the roll-out of a comprehensive highway management program, a new public parking system and the continued grass-roots public safety efforts from the Shannon initiatives, the ambassador program, and the neighborhood watch programming.
I am committed to providing educational and employment options for our citizens and for transforming Pittsfield into a 21st century manufacturing center as well as a vibrant cultural hub. All of these initiative and others will be pursued with a renewed sense of public good and public service.
In 2015, please join the dedicated public staff and core of volunteers committed to creating a promising future in Pittsfield and Berkshire County. Happy New Year.
Daniel Bianchi is the mayor of Pittsfield.
http://www.berkshireeagle.com/columnists/ci_27240945/daniel-bianchi-looking-ahead-2015-and-beyond-pittsfield
Here’s the key paragraph: “Investing in a new high school may not seem prudent given a stagnant regional economy and the recent population trends for Berkshire County. A new comprehensive school is, however, an economic development initiative as well as an educational initiative. With rigorous academics, and well-developed programing, a new high school will provide businesses with the employees of the future.” In it, the mayor finally reveals (a) that it’s a bad idea; (b) that’s the project is being counted on as “an economic engine” (remember all the previous taxpayer-funded “economic engines” that were going to miraculously create a local economy — The Colonial, Spice, EV Worldwide, WorkshopLive, PEDA, and so on; and (c) that the current THS does not have “rigorous academics.” The amazing and believably unbelievable part of all this is that it’s going to be approved without taxpayers being given a chance.
I guess the election season is off and running!
NEWS ARTICLE:
“2015: Do or Die for New Taconic High School”
By Dick Lindsay, The Berkshire Eagle, December 31, 2014
PITTSFIELD – By Memorial Day, the city could embark on building a $115.7 million comprehensive high school municipal officials consider key to developing a work force crucial to Pittsfield’s economic future.
The City Council will have 120 days — until May 25 — to decide on constructing a new Taconic High School, provided the Massachusetts School Building Authority board of directors endorses the scope of the project and estimated price tag at a March 25 meeting.
City Council President Melissa Mazzeo says it’s a matter of weighing the bottom line against the future of public education.
“I do wrap my head around the cost, but since I have been involved in so many meetings, I see it as a good investment,” she said, referring to her three-year stint on the city’s School Building Needs Commission.
MSBA and council approval would culminate nearly a decade of debate, studies and planning for a secondary school that will integrate core academic courses with all the city’s vocation/technical programs.
“We spend millions on education — directly or indirectly — each year in Pittsfield and now we need a game-changer for our community,” said Mayor Daniel L. Bianchi.
The two-term mayor echoes the sentiment of project supporters that a new Taconic will be instrumental in bolstering Pittsfield’s economy for generations to come.
“It’s naive to think a single company will bring 500 jobs here,” he said in a recent Eagle interview. “To allow small businesses to grow and compliment what Berkshire Community College has to offer, the only way to grow is through a good high school.”
“It’s about education — the foundation of what we do,” added Pittsfield School Committee Chairwoman Katherine L. Yon. “The way out from poverty is through education and Pittsfield can be that shining light.”
Before the final votes, state, city officials, the project consultant and architect firm must finalize the design and expected cost — roughly two-thirds likely funded through the MSBA.
On Nov. 19, the state agency’s board of directors unanimously approved the concept and educational plan for a 21st century high school on the Valentine Road campus that would replace the existing 45-year-old secondary school.
“We really do need this project,” Mazzeo said. “For people who went to metal shop and other trade courses years ago, vocational education is so much different now.”
Since the vote, project officials, led by architect, Drumney, Rosane, Anderson Inc., of Waltham and consulting firm Skanska USA Building Inc., have been refining the construction details and financing plan for the proposal.
“You look at everything, trying to find items you can cut … as we’re cognizant of costs,” said Kathleen A. Amuso, co-chair of the Pittsfield School Building Needs Commission.
Based on DRA’s timeline, the architect and Skanska must hammer out a final proposal by Feb. 6 and submit the documents to the MSBA three days later.
The commission welcomes last minute public input at their meetings, with its members expected to fan out into the community to answer questions about and drum up support for a new Taconic.
Currently, Skanska representatives anticipate a 64 to 68 percent reimbursement rate through the MSBA. Skanska officials have said the rate depends on the construction bids received, a bidding process that’s another two years away.
If built, the new Taconic would be 247,770 square feet, slightly larger than the existing facility, which was completed in 1969. The grade 9 through 12 comprehensive high school would house all the city’s vocational/technical programs, which would mesh with English, math, science and other core academic course.
The city is eligible for up to 80 percent state funding, but because of economic and other factors, some costs are ineligible for reimbursement and the true market cost of this type of construction is higher than the state reimbursement rate, the actual rate is typically lower. Hence, Skanska foresees a two-thirds reimbursement for city taxpayers.
Contact Dick Lindsay at 413-496-6233. rlindsay@berkshireeagle.com @BE_DLindsay on Twitter
Key dates in finalizing and seeking approval for a new Taconic High School:
Jan. 12,: Pittsfield School Building Needs Commission reviews scope of project and sends to cost estimators by Jan. 15
Feb. 5 & 6,: Project consultant and architect finalize cost estimate.
Feb. 9,: Commission votes on project scope and budget, submits documents to the Massachusetts School Building Authority by Feb. 12.
March 25,: MSBA Board meets in Boston to vote on project scope and budget.
March 26 – May 25,: If approved by MSBA, the City Council has 120 days to approve the project budget.
http://www.berkshireeagle.com/local/ci_27234953/2015-do-or-die-new-taconic-high-school
The reporter does not interview one person who thinks wasting $1.15 million (official cost used for publicity purpose; true cost much higher) is not “a prudent investment.” There is no evidence of the strong opposition to this project that exists in the community. Read these quotes carefully. You will see what a Done Deal looks and sounds like syllabically. Also keep in mind that taxpayers were never entrusted with a vote on this project. Reason: The Suits know taxpayers do not want it.
Precisely right Dan Valenti. How this project can go forward without Taxpayer Vote is unconcientious, and a travesty.
The new school is certainly going to be an economic engine for the special interests who are involved in consulting, building and providing construction materials for this project. But as usual in Pittsfield, given the mindset of its leadership, they are the only ones left with smiles on their faces. Most others are left shaking their heads and wondering why they still live here.
It will be the same type of economic engine that the airport expansion project was supposed to be.
Great news about Howie Carr returning to WBEC! I have been listening to him on my computer.
Howie is the Dan Valenti of Boston for those of you who don’t know.
Don’t know him but will WBEC let him run an unrestricted show? Will comments be selected for content and edited to please the “everything is rosy in Pittsfield” crowd?
WBEC is just picking up his show. He’s out of Boston and probably doesn’t give a rat’s patoot what pleases the Pittsfield crowd. Jus’ sayin’.
oohh thank ya
Dan this is twice now that penny pincher has insulted you and is not bringing anything to the conversation. Would you agree the time has come to block his posts?
Just ignore the loser.
So I guess you have to tow the company line in order to write on this blog
Dan please delete. Again this poster is adding nothing to the conversation
Being a public employee seems like a good gig. Why can’t they just invest in thier own Roth IRA retirement funds like the rest of us? The unions extort I mean “negotiate” these contracts. These are probably the same people against minimum wage increases for thier neighbors. I agree it needs to be changed. I’ve been working since I was 13 not including shoveling snow and yard work for neighbors to earn a few bucks and if I retire at 68 I get $945 a month. Doesn’t seem like a adequate amount of money to add to my income 34 years from now.
Scott your just mad that you have to give your workers a raise.
Mr. Pincher,
I can personally vouch for Scott in that he does not pay minimum wage, but a fair days wage for a fair day’s labor.
I should have addressed you as Ms….
Apologies…..
What if everyone had to invest their retirement in the stock market, and then the stock market went bust? Who would get all of the money? Would the masses/suckers end up living on the streets? Dan Valenti would be happy because taxes would be cut!
Johnathan fear drives the market. When people are pulling out that’s the time to stay patient and keep investing because in the long run it always recovers.
The other day I was in the ” 12 items or less ” checkout at a local grocery store when I noticed that the woman in front of me had a shopping cart with well over 50 items in it….seeing this the cashier asked the woman ” Ma’am which 12 items in your shopping cart do you want to pay for ? “. I thought to myself that finally I had witnessed
a very special moment where for once the customer wasn’t right. In
total frustration the woman shopper in front of me stormed out of the store…and it seemed for once in my life everything was just right. I
smiled at the cashier as I checked out the 9 items in my shopping cart.
I’m glad the cashier told the customer. It was a clever way of handling it.
Actually, it was for customer service. Shoppers have been known to weild chainsaws and go berserk in 12 or less lines on these sorts of situations.
Howie Carr will keep the Pittsfield people aware of what games are being played in Boston, that’s why I listen to him. It might be hard for some people to realize, but the universe is larger than Pittsfield. Think of where most of your taxes go – RIGHT – Boston and Washington.
Just saying!!
Howie is always good for a fresh perspective.
Penny Pincher is a class act, send those topix rejects a piece of your mind Penny, but don’t mess with the Planet!