STUMP » Articles » Public Pensions: Why Keeping a Watch is Important » 23 June 2014, 17:34

Where Stu & MP spout off about everything.

Public Pensions: Why Keeping a Watch is Important  


23 June 2014, 17:34

A nice review of work by an Arizona reporter, made by his boss:

Being a bad-news messenger is not easy. Just ask reporter Craig Harris.

Harris has written about difficulties faced by Arizona’s public-employee pension plans since fall 2010, beating most of the national journalism pack out of the gate on one of the most important ongoing stories of the decade.

It has already played out in cities like Detroit; San Bernardino, Calif.; and Central Falls, R.I.; where the inability to bring soaring public-employee pension costs under control helped force municipal governments into bankruptcy.
Harris’ first series on pension problems in Arizona was published in fall 2010. The gist of the eight-part series was that overly generous public pensions were costing taxpayers millions and were likely to get into financial trouble. He took a lot of flak for that series from pension-fund members and from state and local officials who perceived it to be an attack on public employees.

It was not. It was a warning based on informed reporting and a careful eye on national trends. Astute observers saw the looming public-pension crisis on the horizon, and The Arizona Republic saw value in examining their forecasts and asking tough questions in Arizona.

Harris and a colleague, Beth Duckett, researched and authored a second series in May 2013 focusing on public-safety pension funds and the dire straits some Arizona communities, such as Phoenix, find themselves in: They can’t afford to hire new cops because their public-safety retirement costs are too onerous.

To public employees who find fault with this kind of government accountability reporting, we pose this question: Would they be better served if we waited until the systems are on the financial brink to raise questions?

And this is exactly the point.

While some pension plans are being sunk by hideous skulduggery, for the most part it is not intentional ill-will or underhanded dealing that has caused the problem of unsustainable pensions.

Some pensions that did what they thought they were supposed to — standard benefit designs with certain minimum years of service requirement, putting in the actuarially-required amount each year, investing in a mix of stocks and bonds with good oversight — are finding the required contributions are climbing rapidly and their funded statuses are falling behind. This is not a good thing.

Of course, many public pensions did not get their required contributions. Those fell even further behind. And continuing to fall further behind.

Even when the public employee unions are not to blame for the pensions being in a poor condition, it does no help pointing at all the “bad guys”, because said bad guys aren’t going to be coughing up the money. There’s no enough money from whoever the bad-guy-of-the-day is (or said bad guys died decades previously).

Ultimately, everything comes from the taxpayers: pension contributions and current salaries both come from the taxpayers. Those “employee contributions” to the pensions are from the taxpayers.

And you can only get so much from the taxpayers.

As noted above by Harris’s editor, would the public unions prefer for the media to cover what happened to the pension plans after they fail? Because some reporters have done that job elsewhere. And it did not call the pensions of Prichard, Alabama to come back into being. Fancy that.

I do agree that the motives of some in the public pension debate are questionable — specifically, all politicians. I saw someone recently recommending that elected officials not get pensions at all which I fully agree with.

Both big “C” (illegal) and little “c” (legal but still bad) corruption have sullied our state’s reputation.

Abuses of pensions for elected officials represent an example of little “c” corruption.

When I was active in government and politics, I recall that near the end of each biennial legislative session, a pension bill would move quietly, on cat’s paws, along the legislative process.

The bill contained “sweeteners” that provided pensionable credits in a well-paid system like that for legislators and judges for unvested service earlier in a local government such as an assistant state’s attorney, park board official or sanitary district commissioner.

In the 1980s, such a bill included the change in a constitutional officer’s (governor, secretary of state and others) base for pension benefits from that of the pay of the Speaker of the House to the much higher base of their own salaries. This action more than doubled retirement benefits for such elected officials, and at significant cost to the state in terms of unfunded liabilities.
One of the more egregious of these abuses occurred in 2011 when, according to the Chicago Tribune, Chicago Ald. Edward Burke more than doubled the annual pension of his buddy, former state representative Bob Molaro, to $120,000.

Burke had Molaro work for just one month in his city hall office, at $12,000 per month or $144,000 per year. This qualified Molaro for a legislative pension based on that six-figure amount, rather than one based on his much smaller legislative salary.

What did Molaro do to earn his $12,000? He wrote a paper about the sorry state of our public pension systems, basically laughing at the taxpayers who will pay the extra pension benefits for Molaro.

So my associate Tom Johnson came up with a simple proposal: Eliminate all pensions for state and local elected officials in Illinois going forward, maybe excluding judges, whom we do want to serve many years.

Eh, I’d include judges. Mainly because they’re the ones who keep having to rule on the constitutionality of pension changes. If they have these pensions, too, then they may think that their own pensions will be next on the chopping block. Yes, I know, conflict of interest, but it’s not like they can draft any judges from other states to rule on a different state’s constitution.

But back to the first article. Disaster is coming for many public pensions, and there are no real bailout mechanisms other than trying to soak taxpayers (and bondholders, but generally one can screw bondholders only once. So you’d better make that first screwing worth it, because it will be a long time before you get another shot at it.)

And soaking the taxpayers has some issues as well.

It is better for public employees to know exactly what is going wrong with their pensions ahead of time, so they can plan to protect themselves as best as possible (some of the Prichard, Alabama pensioners were essentially destitute when the pension fund ran out and no pension payments to current retirees were made, at all, for over a year). As well, they can collectively get together in their unions to try to figure out how they can change their pensions to something that is sustainable. Then the transition can be smoother and people will not find that there is much, much less than they need when they retire.

Too many public unions think they can brazen it out, sue money for pensions into existence, and it will all be hunky-dory. Or that they can negotiate for pay increases now while waving hands at inadequate pension contributions, thinking that the pensions will always be made whole. Somehow. Eventually.

Of course, reality doesn’t work like that. But convincing people also doesn’t work like a mathematical proof. It takes people like Craig Harris methodically going through issues, and reporting on them for years — or taking other people’s investigations/studies and promoting them, like at Pension Tsunami.

It is good to see that some public employees are taking these issues seriously and are trying to work on practical solutions before undeniable bankruptcy comes.

Sounds like there is hope for Arizona.

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