COMMENTARY: Fed screams softly in warning about
public pension crisis
by FRANK KEEGAN | April
18, 2012
This is what it sounds like when the Federal Reserve Bank
screams: "Much has been written about the various headwinds restraining
economic activity over the near term. However, our economy also has other
headwinds to confront over the medium- to-longer-term. ... the
finances of some state and local governments are also under stress and in need
of serious adjustments." - Federal
Reserve Bank of Cleveland
President Sandra Pianalto
Pianalto's carefully worded column in the latest "Forefront" magazine refers
to "Public Finances: Shining Light on a Dark Corner," three reports
on a year of research by the Cleveland and Atlanta Feds.
Forefront editors introduce the issue: "Many
state and municipal budgets are in woeful shape. What concerns should we have
about public pensions and municipal bond markets? ... we
explain where risks could be building and how reforms might help forestall
their impact on the broader economy and financial system."
Forestall? How about prevent their
impact on the broader economy and financial system?
No such luck, citizens. "Public Pensions Under Stress" reports, "It
now seems inevitable that sacrifices will be required from current employees,
employers, and in some cases, retirees. ...
"Without strong remedies, at what point would
pension plans run out of money, leaving financially impaired state and local
governments on the hook? That question is not quite settled."
Actually, asking when they will run out
of money instead of if they will run out of money confirms
that politicians and pension fund managers have been denying reality for years.
Read complete article at http://www.statebudgetsolutions.org/blog/detail/commentary-fed-screams-softly-in-warning-about-public-pension-crisis
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State
Pension Reform Passes | New York City | United States ...
By Kristen Meriwether - Epoch Times Staff - March 16, 2012
NEW YORK—The retirement age for state workers is going up
and the percentage they have to pay into their pensions is rising based on
reform passed by Albany
on Thursday.
For the second time this year, Gov.
Andrew Cuomo and state lawmakers worked through the night to pass key state
legislative reform, including a new pension reform bill for state public
employees.
A contributing factor for the pension
reform has been the recent increase in what is owed by local municipalities. In
2002, local governments only owed $1.4 billion, but this year that number grew
to $12.2 billion, according to Gov. Cuomo. With city budget is already tight,
the only options left to local governments to pay their pension bills was
raising taxes, cutting services, or reform. Lawmakers chose reform.
“This bold and transformational pension
reform plan is a historic win for New
York taxpayers and municipalities that will save more
than $80 billion over the next 30 years, while preserving retirement security
for public workers,” Cuomo said in a statement.
Pension
Plan Highlights:
• Tier increase employee contribution
rates from 3 to 6 percent depending on income.
• Increased Retirement Age from 62 to 63
• Pension multiplier is 1.75 percent for first 20 years of service and 2
percent from 21st year on
• Vesting after 10 years of service
• Reduction in pension padding by limiting overtime and use of anti-spiking
measures
• Inclusion of optional defined contribution plan for new nonunion employees
with salaries $75,000 and above.
• Only 100 sick days can be used for retirement service credit
• Employees making over governor’s salary (currently $179,000) are not eligible
for pension
Related Articles
Read complete article at http://www.theepochtimes.com/n2/united-states/state-pension-reform-passes-206332.html
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Also read below: Stockton: Another museum of bad ideas
By Steve Malanga on
February 28, 2012
Broken Windows, Broken City
By Steven Greenhut March 6, 2012
Stockton faces pending
insolvency and an unraveling social fabric.
Where’s a good Occupy protest when you need one? Those
scraggly protesters are making mischief on behalf of “the 99 percent” in Oakland, and they’re raging against university
tuition increases in San Diego, Los Angeles, and Santa Cruz. Yet as a municipal
crisis unfolds in one of California’s former
boomtowns, “Occupy Stockton”
is nowhere to be found. If the movement cared about ordinary people as much as
it claims, it would have plenty to keep it busy in Stockton, where the greed and
shortsightedness of the public sector have sent a relatively poor city
careening toward insolvency and unraveled its social fabric.
Because California’s
municipalities have squandered so much of their budgets on government workers
and retired employees, they haven’t been able to provide the essential services
that justify government’s existence. Stockton
is a case in point. Bob Deis, who took over as city
manager in 2010, told reporters recently that the city’s finances resembled a Ponzi scheme. He had never seen the kind of unaffordable
health plan that Stockton
employees receive: complete medical care for the employee and spouse for
life, available, in some rare circumstances, after only a month on the job.
“Employee costs are weighing down the city in the wake of a recessionary slump
in revenues,” City Journal’s Steve Malanga observed last week. “Stockton has spent the
last two years trying to reduce its budget to avoid insolvency. The city has
cut about a quarter of its police, but rich pension and health benefit deals
still make it difficult for the city to pay its bills. . . . Employee costs
make up 81 percent of the city’s general fund spending.”
Stockton has taken out pension-obligation bonds and
followed other California
cities in squandering tens of millions of tax dollars on redevelopment
projects—in its case, a new minor-league baseball stadium and a waterfront
entertainment project—that it hopes will bring an urban renewal.
Steven Greenhut is vice president
of journalism at the Franklin
Center for Government and
Public Integrity.
Read complete article at http://city-journal.org/2012/cjc0306sg.html
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Stockton: Another museum of bad ideas
By
Steve Malanga on February 28, 2012
Back in October I observed in the WSJ that Harrisburg, the insolvent state capital of Pennsylvania, could
qualify as the home of any museum of bad governing ideas, given how the city
had managed to borrow its way into bankruptcy. Another contender, however,
would have to be Stockton,
Ca., a city of 300,000 people that announced it will
stop making payments on some of its debt perhaps as a prelude to a bankruptcy
filing. As the chart below shows, Stockton's
projected expenditures far outstrip revenue growth, thanks in large part to
unaffordable employee costs.
Check out the charts at http://www.publicsectorinc.com/forum/2012/02/stockton-another-museum-of-bad-ideas.html
Stockton officials
engaged in a series of questionable practices, including borrowing heavily for
new projects they hoped would stimulate economic development like a minor
league baseball stadium and city arena. The city also borrowed $124 million in
pension obligation bonds, floated to raise money to meet the city's pension
costs.
Employee costs are weighing down the city in the wake of a recessionary slump
in revenues. Stockton
has spent the last two years trying to reduce its budget to avoid insolvency.
The city has cut about a quarter of its police, but rich pension and health
benefit deals still make it difficult for the city to pay its bills. As the
chart below from the city's budget shows, employee costs make up 81 percent of
the city's general fund spending. Pension costs alone eat up 22 percent of the
budget, while health expenditures consume another 19 percent. On top of that
the city has huge unfunded liabilities for promises it made to retirees,
including $450 million in liabilities for retiree health care alone, thanks to
expensive promises the city made in the 1990s to finance lifetime health
benefits for city employees
Meanwhile, things have gotten ugly in Stockton. The police union
even purchased a home next to the Stockton
city manager that left city officials crying that the union was engaged in
intimidation. The union also erected billboards declaring Stockton,
"the 2nd Most Dangerous City
in California."
Stay tuned.
http://www.publicsectorinc.com/forum/2012/02/stockton-another-museum-of-bad-ideas.html
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Bankrupting Providence
Erin Schikowski March 28, 2012
Providence, Rhode Island—On March 3, Providence Mayor Angel Taveras stood before hundreds of retired city workers—former
teachers, firefighters, police officers and many others—who had gathered for a
town hall meeting in a ballroom overlooking the Pawtuxet
River. Having warned that the city could face bankruptcy, he said, “I’m here because I want to make sure that
we save your pensions.”
As his chief of staff explained soon thereafter, retirees
could see their pensions cut by 73 percent if the city files for Chapter 9
bankruptcy. To avoid that outcome, Mayor Taveras has
asked tax-exempt institutions—hospitals and universities—for an additional $7.1
million in voluntary payments to the city and proposed that retirees pay more
for healthcare and accept an estimated twenty-year freeze in cost of living
adjustments (COLAs) on their pensions. If nothing changes, said the mayor’s
chief of staff, the city “will literally have no money to make payroll, make
debt payments [or] pay our vendors” come July.
That may sound dire, but the city’s finances were in worse
condition this time last year, when Mayor Taveras
announced a $110 million structural deficit. Since then, he has reduced the
deficit to $22.1 million by, among other things, increasing taxes, closing
schools, trimming police and fire department budgets and negotiating new labor
contracts with teachers, firefighters, police and others.
If the city implements the proposals delivered before
retirees at the town hall meeting—suspending COLAs, moving retirees over 65
onto Medicare and putting retirees under 65 onto a healthcare plan that
requires a 20 percent co-share—the city will save $28 million, in addition to
the $7.1 million being asked of tax-exempts. However, a state judge recently blocked the city’s attempt to move
retirees over age 65 onto Medicare, and Taveras says
he expects the other changes he proposed to undergo a similar analysis if they
are challenged in court.
While the mayor admits that asking retirees for concessions
is “not fair,” he also recently accused them of “hiding
behind decades‐old contracts” and avoiding shared sacrifice.
The latter, says Paul Doughty, president of the Providence firefighter’s union, sends a
dangerous message: “If we don’t have the protection of contracts [that] mean
something, really our word as people amongst each other doesn’t exist. It’s the
foundation of this government—particularly of a capitalist economy—that our
word has to mean something.”
Like many other cities, Providence was hit hard by the housing crisis
and recession, which slowed the economy and reduced tax revenue. But factors
unique to Providence
have contributed to the city’s budget shortfall, as well. While property taxes,
for example, are a primary source of revenue, about half of
the city’s land cannot be taxed because it is owned by tax-exempt institutions,
like Brown University,
Providence College
and Rhode Island Hospital. Additionally, Providence has $828
million in long-term, unfunded pension liabilities due in part to agreements made in the 1980s and ’90s, which
included guaranteed 5 and 6 percent COLAs and a reduction in the minimum amount
of service required for retirement.
Read complete article at http://www.thenation.com/article/167088/bankrupting-providence
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