Public Pensions and the Death of American Cities

On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss American cities going broke, why public union pensions play a significant role and if Washington may eventually bail out bankrupt cities and states.

We’re brought to you by Stephen Clouse and Associates and The Heritage Foundation’s Morning Bell. If you’d like to email us, you can do so at bjackson[at]coffeeandmarkets.com. We hope you enjoy the show.

Via: Red State

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California: Long Beach says it has achieved total pension reform

The city of Long Beach is announcing that it has achieved pension changes for all city employees after reaching a tentative agreement that asks four of the city’s bargaining units to increase the amount employees pay into their retirements.

The contracts represent the final piece of nearly three years of negotiations with nine unions that sought to lower pension costs as the city struggled financially.

Since 2007, the city has eliminated 786 positions and slashed $134 million from its general fund.

“Long Beach has become a smaller, more nimble organization…but we needed to address an issue of inequality in the city organization and compensate our remaining employees fairly,” Mayor Bob Foster said in a press release Monday.

Aside from the few dozen employees who received a raise in 2009, most of the 800 workers covered by the new contracts had not received raises since 2008. Foster said the new contracts help bring the employees’ pension contributions and salaries in line with other workers.

Employees covered under the new contracts will now contribute 8% of their salary into CalPERS, an increase from the 2% they previously paid. As part of the deal, they will also receive a 5% raise this month, followed by a 4% increase next year.

After more than a decade of painful cuts, city officials said they expect a healthier economy and improving budget situation to offset some of the resulting costs. Long Beach recently projected a surplus of $3.5 million for the 2014 fiscal year, its first in 10 years.

The contracts cover about 14% of the city’s workforce, including engineers, lifeguards, management, and confidential employees who assist in contract negotiations between the city and other employees.

The city struck pension deals with the city’s police and firefighters in 2011, and approved new contracts with the city’s largest union, the International Assn. of Machinists, in January.

In those deals, the retirement age and formula to calculate pension payouts for most existing employees remain unchanged – most continue to receive 2.5% of their salary as pension for each year on the job and are eligible to retire at 55.

However, new employees will receive 2% for each year, and would have to wait until age 62 to retire.

All together, the city expects its new contracts to save them $250 million across all funds, and $130 million in the general fund, over 10 years.

Via: Los Angeles Times

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New York: Corrupt — and Set for Life

A corruption conviction doesn’t necessarily stop elected officials from profiting at the taxpayers’ expense. But a new effort led by U.S. Attorney Preet Bharara aims to go after politicians’ public pensions when the courts find them guilty.

“Our primary mission is to address and to undo injustice, and, in the public-corruption context, a galling injustice that sticks in the craw of every thinking New Yorker is the almost inviolable right of even the most corrupt elected official — even after being convicted by a jury and jailed by a judge — to draw a publicly funded pension until his dying day,” Bharara, attorney for the Southern District of New York, testified on September 17 at the Moreland Commission to Investigate Public Corruption. He added that “convicted politicians should not grow old comfortably cushioned by a pension paid for by the very people they betrayed in office.”

National Review Online has found that since 2008, at least four convicted politicians in New York have drawn pensions, all in excess of $3,000 per month.

Via: National Review Online

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Hundreds of private lobbyists earning public pensions in 20 states

ALBANY, N.Y. –  As a lobbyist in New York's statehouse, Stephen Acquario is doing pretty well. He pulls down $204,000 a year, more than the governor makes, gets a Ford Explorer as his company car and is afforded another special perk:

Even though he's not a government employee, he is entitled to a full state pension.

He's among hundreds of lobbyists in at least 20 states who get public pensions because they represent associations of counties, cities and school boards, an Associated Press review found. Legislatures granted them access decades ago on the premise that they serve governments and the public. In many cases, such access also includes state health care benefits.

But several states have started to question whether these organizations should qualify for such benefits, since they are private entities in most respects: They face no public oversight of their activities, can pay their top executives private-sector salaries and sometimes lobby for positions in conflict with taxpayers. New Jersey and Illinois are among the states considering legislation that would end their inclusion.

"It's a question of, 'Why are we providing government pensions to these private organizations?'" said Illinois Democratic Rep. Elaine Nekritz.

Via: Fox News Politics

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Free California's transit funds

U.S. Labor Secretary Perez is threatening to withhold billions of dollars in grants for state projects. State officials should keep pressing to change his mind.

The rising cost of public employee pensions represents one of the biggest fiscal challenges for California governments over the long term. The state took an important step to rein in those costs last year when the Legislature adopted a pension reform law pushed by Gov. Jerry Brown. Transit unions complained about the law to U.S. Labor SecretaryThomas E. Perez, however, and he's threatening to withhold billions of dollars in grants for California mass-transit projects in response. Perez is wrong on the issue, and state officials should keep pressing to change his mind.

The secretary's authority over transit grants comes from the 1964 Urban Mass Transportation Act, which sought to preserve collective bargaining rights for transit workers as private bus and train lines were being taken over by public agencies. The law calls on the secretary to withhold grants as needed to assure "the preservation of rights, privileges and benefits (including continuation of pension rights and benefits) under existing collective bargaining agreements or otherwise."

Los Angeles County Metropolitan Transit Authority workers claimed in November that the new state Public Employee Pension Reform Act violated that stricture, and the Labor Department has since refused to release the grants that would otherwise have flowed to California transit agencies. The impasse has cost Metro more than $250 million so far; the agency fears that $3.6 billion in grants could be lost, most slated for the so-called subway to the sea project.

But the state pension law doesn't eliminate current workers' right to bargain over wages, terms of employment or provisions of their existing pensions. It would eliminate some techniques used to artificially inflate pensions, but such practices hardly seem to be the sort of thing Congress was trying to protect in 1964.

Via: LA Times

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Detroit Bankruptcy Could Slash Pensions 90%: CA Take Note

Detroit declared bankruptcy last week. For California, here are the takeaways from the Detroit News report:

“A bankruptcy judge could trump the state constitution by slashing retiree pensions, ripping up contracts and paying creditors roughly a dime on the dollar for unsecured claims worth $11.45 billion.”

That’s because the bankruptcy will be heard in a federal bankruptcy court. The California Constitution has similar clauses. California’s pension funds insist that, no matter what, the pensions are sacrosanct; that state law trumps federal bankruptcy law. The Detroit bankruptcy could provide an answer.

Emergency Manager Kevyn Orr…

“proposed paying most of the money owed to secured creditors while pension funds, unions and unsecured bondholders would receive, in some cases, 10 cents on the dollar.”

That’s right: 10 percent. Which means the funds themselves effectively would become insolvent, and pensioners would not get paid.

As I’ve written before, about 30 years ago the same thing happened to Detroit’s neighboring city of Highland Park. Bankruptcy led to the pensions being entirely canceled. When there’s no money, there’s no money.

Via: California Political Review

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DOCUMENTS: OBAMA ADMIN SLASHED 20,000 NON-UNION AUTOWORKER PENSIONS

Newly uncovered internal documents between the Treasury Department and the federal agency in charge of private-sector pension benefits reveal that the Obama Administration was directly involved in the elimination of pension benefits for 20,000 retired salaried workers of GM supplier Delphi Corp., a claim it previously denied.

The revelation, says GOP Vice Presidential nominee Paul Ryan, should make Ohioans and others think twice about buying President Obama’s claim that he saved the American auto industry. 

“You see, the president likes to go around Ohio talking about how he saved the auto industry, how the auto bailout was such a success,” said Ryan to an Ohio audience. “He hasn’t talked to these Ohio Delphi salaried employees. Because this is one of those examples of the government picking winners and losers.”

At issue is whether the federal agency tasked with handling private-sector benefits, the Pension Benefit Guaranty Corporation (PBGC), actively conspired with the Treasury Department to protect unionized employees while slashing the pensions of non-unionized Delphi retirees between 30 and 70 percent, as well as cutting healthcare, life insurance, and other benefits.

The Obama Administration originally pointed the finger at the PBGC, but new internal emails uncovered by the Daily Caller demonstrate clear coordination between the Obama Administration and those it now blames for gutting the pensions of 20,000 non-union employees. Specifically, a July 2009 document titled “Treasury Talking Points re: Delphi” was sent as an attachment to a July 7, 2009, email from PBGC’s Joseph House to Treasury’s Matthew Feldman, Oren Haker and Paul Nathanson.

Via: Breitbart

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Despite Promises of Transparency, Obama Administration Suppresses Report That Would Detail Rise in Welfare Dependence

Washington, DC - A day after his inauguration, President Obama promised his Administration would be defined by its openness and transparency, proudly declaring, "I will also hold myself, as president, to a new standard of openness….Transparency and the rule of law will be the touchstones of this presidency."  Sadly, the Obama Administration has failed to live up to the President’s lofty rhetoric, and its record on transparency is littered with broken promises.  The latest example is the Administration’s withholding of Federal data about welfare receipt and dependence on government benefits.  Under a 1994 law, the U.S. Department of Health and Human Services (HHS) is required to issue annual reports on the degree to which Americans are dependent on various welfare benefits.  This 1994 law was authored by Rep. Pete Stark (D-CA), passed by the Democrat-controlled House and Senate, and signed into law by President Bill Clinton.  Yet after nearly four years, the Obama Administration has never once issued this report.   
  
The 1994 law requires HHS to issue this report to leaders of key Congressional committees with jurisdiction over various welfare programs: the House Committees on Ways and Means; Education and the Workforce; Agriculture; and Energy and Commerce and the Senate Committees on Finance; Health, Education, Labor and Pensions; and Agriculture, Nutrition and Forestry.  Today, the Republican House Chairmen and Senate Ranking Members of these Committees sent a letter to HHS Secretary Sebelius asking for an immediate response as to (1) why HHS has failed to issue this report during her nearly four years as Secretary, and (2) when HHS expects to finally issue this report.  A copy of the letter is availablehere.

If issued, this report would reveal that dependence on government benefits has risen sharply during the Obama Administration.  All the more troubling is the fact that, while suppressing this annual report on welfare dependence for nearly four years, HHS recently took action to illegally waive work requirements for welfare recipients, which will result in even more welfare dependence.   

In their letter to Secretary Sebelius, the Chairmen and Ranking Members wrote, “HHS has failed to issue even one of these annual reports required by law during the nearly four years you have been Secretary.  It also means that the 2009 annual report is now more than 1,000 days overdue.” 

Via: Committee on Ways and Means

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Exclusive: Study shows $1.2 trillion gap for public pensions

(Reuters) - The largest 100 public pension funds have around $1.2 trillion of unfunded liabilities, about $300 billion above the nearly $900 billion they reported themselves, according to a new actuarial study to be released on Monday.

The pension systems reported a median funding level of 75.1 percent. The study by the actuarial firm Milliman, which used different ways to value assets and measure liabilities, finds an aggregate level of funding of 67.8 percent.

But Milliman, one of the world largest actuarial firms took a close look at U.S. public pension funding for the first time, and said the multibillion-dollar difference was good news.
Rebecca Sielman, the report's author, said results should reassure the public that America's public pensions in general are accurately reporting their funding shortfalls.

The difference between what public pensions across the United States have reported and what Milliman found wasn't significant, Sielman said. She noted that a relatively small change in the way the figures are calculated could lead to seemingly outsized results because the funds are so large.
"The numbers really didn't change that much," she said. "It really didn't move the needle."

Both the pension funds' reported results and Milliman's findings fell within the range of previous estimates from other studies of the total size of the public pension shortfall in the United States.
With the study, Milliman, stepped into the debate about whether public pensions are underreporting the size of their liabilities.

That hot-button issue revolves around how much money public employers - and, by extension, taxpayers - will have to contribute to cover future payouts for member benefits. It is a key issue at a time of dwindling revenues and tighter budgets for states and local governments.

Pension funds get money from the returns on their assets and from members' contributions. States and cities also pay into the funds, but their contributions are discounted based on how much money they think their investments will make over time.

Via: Reuters

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DeMint joins national effort to keep feds from bailing out state pension systems

Illinois Democratic Gov. Pat Quinn is getting hit with a nationwide backlash over his suggestion that the federal government bail out the state employees’ pension program

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Critics have in the past several days pounced on the suggestion, made last year when Quinn, in announcing the state’s fiscal 2012, said part of Illinois' long-term effort to reduce the estimate $167 billion in under-funded liabilities would be to seek “a federal guarantee of the debt.”

Among those leading the charge is Republican Sen. Jim DeMint. The South Carolina senator has joined the Illinois Policy Institute’s national “No Pension Bailout” campaign -- an effort to stop Congress from attempting to rescue failing state and municipal pension plans.

“Our greatest concern is states will assume they can run their pension systems into bankruptcy and then turn to the federal government for bailout,” DeMint said Thursday.

He also suggested the problem is the result of state legislators trying for decades to win over voters through pension promises based “on accounting methods that would put any business in jail.”

The conservative policy group estimates the total amount of under-funded pension liabilities in states is at least $2.5 trillion, with Illinois leading the nation.

The basic plan floated by Quinn would be for the federal government to rescue the pension program through buying the state’s bonds, which critics say are too financially risky to attract investors.  

Quinn said after announcing the budget that seeking the federal guarantee was only a precaution, then later called the related wording a “drafting error,” according the non-partisan Citizens Against Government Waste, which nevertheless gave the governor its September 2012 “Porker of the Month” award.

Via: Fox News

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Gov. Brown Says Prop 30 Taxes Are All About Schools — Not So

Governor Jerry Brown kicked off his campaign to pass Proposition 30 on August 15, showcasing what Dan Schnur, Director of the USC Jesse Unruh Institute of Politics called “the most expensive ransom note in California political history” – pass the tax increase or the schools get it. The problem is that this tax increase proposal comes with no reforms for school funding, let alone other big-ticket items like pensions, and is likely a band-aid that would lead to more taxes in the future.

The schools are the focus of Brown’s kick-off at a school location but they are not the focus of the funds raised by the initiative.

The schools get no guaranteed new money from Prop 30. That’s not me saying so, that’s a comment from the California School Boards Association quoted in a Sacramento Bee article. “Despite endorsing Brown’s measure, (California School Boards Association) leaders said they ‘want to make it clear to the public that the governor’s initiative does not provide new funding for schools. Instead, it bolsters the General Fund with new revenue.’”

A Wall Street Journal editorial stated that, “The dirty little secret is that the new revenues are needed to backfill the insolvent teachers pension fund.”

Note that the School Boards Association pointed out that the new funding “bolsters the General Fund.” The association is not the only observer to recognize that this tax increase is about the General Fund. The Legislative Analyst Office’s report on Prop 30 stated:  “The new tax revenues would be available to fund programs in the state budget.”

Via: CA Political Review

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House Ways and Means chairman demands Delphi pension termination documents from Obama administration

Republican House Ways and Means Committee chairman Dave Camp demanded Wednesday that the U.S. Treasury Department and the Obama administration release records connected to an emerging scandal surrounding autoworker pensions terminated during the auto bailout. The Pension Benefit Guaranty Corporation (PBGC) and the Treasury Department axed pensions in 2009 for 20,000 non-union salaried retirees who worked for Delphi.

Those workers’ pension plans lost between 30 and 70 percent of their value, while similar plans covering members of the United Auto Workers and other labor unions were preserved and made whole.

Camp fired off letters to PBGC director Josh Gotbaum, Treasury Secretary Timothy Geithner and White House Counsel Kathryn Ruemmler, asking for dosuments by September 7. His committee seeks internal documents and communications relating to the decision-making process that resulted in those pension losses for non-union Delphi retirees.

From the PBGC, Camp demanded Gotbaum provide “all records, including but not limited to electronic mail to or from PBGC, the Departments of Treasury, Labor and Commerce and the Executive Office of the President of the United States” that relate to Delphi and General Motors’ interest in Delphi “for the period of January 1 through December 31, 2009.”

He demanded similar documents from Geithner and Ruemmler.

Via: The Daily Caller

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Illinois to Spend More on Pensions Than on Education

The state of Illinois faces at least $83 billion in unfunded liability between its five pension systems, and is on track to spend more on its government pensions than on education by 2016, a new study released by Governor Pat Quinn’s office says.

The state budget office conducted the study based on a “district-by-district analysis” if the state does not enact comprehensive pension reform, the governor said in a statement. Governor Quinn released the study a few days after calling a special session dedicated to pension reform on August 17.

Illinois faces severe underfunding in its pension system. It reported a funded ratio of 43.4%, way below the 80% considered healthy. Based on fiscal 2010 data, Illinois had the lowest funded ratio of any state, according to a June 2012 report by the Pew Center on the States.

Via: Fox Business

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