The pensions problem extends beyond Atlanta (Updated)
Kasim Reed has been quite active since taking office as Atlanta’s mayor last month, and one of the most important task forces he put in place — on the city’s exploding pension costs — releases its first public report today. There’s every indication that Reed understands this knot has to be untangled before the city can act substantially on any other area.
The panel will report on the current state of the city’s pension plans and will outline some possible paths forward. It will not, however, make recommendations about those possible paths forward. That’s a political question that has to be decided by Reed and the City Council.
That debate will certainly be a raucous one, with taxpayers pushing for reducing the city’s commitments while employees try to keep as much of what they have as possible. The taxpayers are right, because the city simply can’t keep the promises it made to employees when it increased benefits in 2001 and 2005.
Atlanta is far from the only city having this fight. Every day I get an email from PensionTsunami.com with references to news stories about public pension problems, and every single day there are about a dozen links. Most of them are in California (in part because that’s where PensionTsunami.com is based) but the problem is widespread.
Reason.com’s Nick Gillespie explains that it’s no coincidence that so many governments happened to get their pension plans wrong. The problem is with the model:
The basic bargain about public-sector work, hammered out decades ago in a very different world, is supposed to be: You give up status, upward possibility, and compensation now for job security and payoffs later in retirement. That has never really been true and is certainly less so now. Yes, public-sector jobs ofer more security than their private-sector counterparts, but compensation is also higher on average and the benefits, especially in retirement are gold-plated to the nines. That bargain, which is unsustainable economically, is going to hit the rocks. The only question is: Who is going to pay? Taxpayers or the public-sector workers?
I don’t have numbers on total compensati0n for Atlanta’s police, firefighters and general employees (the city has a separate plan for each group). But I have written before detailing that the city’s pensions are richer than even those for retired Marines, and that pension benefits are the least flexible form of compensation and thus the biggest strain on the budget.
Check back later to see what the panel reports. Update following this afternoon’s meeting, in bullet-point form:
- The city of Atlanta has been putting 13 percent more each year, for the past 10 years, into its three pension funds. In spite of this, its unfunded liabilities have been growing by 21 percent a year — from $321 million in 2001 to $1.5 billion in 2009.
- If nothing is changed, within five years the city will be spending more on employee pensions than it does on police (currently is the largest category of expense).
- The unfunded liability is even larger — $3 billion — if we add the potential liability for retirees’ health benefits. Government accounting rules may soon change to require cities to recognize this.
- If that accounting change had been in place for 2009, the city’s required annual payout for retirees’ benefits would have soared from the already sky-high $145 million a year (20 percent of the overall budget) to $239 million, or almost half the budget.
- The growth in annual pension payments has occurred in large part because of poor investment performance (which accounts for 27 percent of the increase). But well over half the increase is due to the benefit changes in 2001 and 2005 and the number of employees retiring earlier than previously assumed.
- On that last point, the city’s actuaries previously assumed that only 47 percent of police officers and firefighters would retire by age 55; over the past 10 years, the actual rate has been 90 percent.
As I said before, the question now is how to move forward. These figures make it extremely difficult to see how Atlanta can keep the status quo on pensions and keep its head above water.
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82 comments Add your comment
LA
February 22nd, 2010
3:30 pm
dewstarpath
From the very beginning, you’ve called me names and posted comments about me being someone else. You accused me of being two to three other bloggers.
I will debate you etc. and will show you respect if you show me the same respect.
josh gibson
February 22nd, 2010
3:31 pm
When are we going to discuss raising the retirement age by a significant number of years. Pensions were not designed for people to retire at 55 and live to 95. Changing the retirement age for full benefits to say 75 would be a more realistic portrayal of modern America and could go a long ways towards solving pension funding problems.
Skeptic
February 22nd, 2010
3:44 pm
Changing the retirement age for full benefits to say 75 would be a more realistic portrayal of modern America and could go a long ways towards solving pension funding problems.
Fine–if and only if employers are expressly prohibited from setting mandatory retirement ages below 75.
tscali
February 22nd, 2010
3:47 pm
changing retirement age to 75? for future retirees maybe, but not the ones who all previous administrations made promises to. they contributed in good faith. good faith should be returned to the people.
Hillbilly Deluxe
February 22nd, 2010
3:53 pm
If you’re going to change the retirement age to 75, you might as well just have everybody work until they drop dead and forget about retiring. Most 74 year olds aren’t really able to work anymore.
songbird
February 22nd, 2010
4:09 pm
Delaying retirement benefits until age 75 would require a lot of corporations to change their mandatory retirement age which is now 65. If you look at unemployment statistics, unemployment is higher among youth and 50+. If people are going to delay receiving retirement benefits until age 75, they will probably need to keep working. Easier said than done.
tc
February 22nd, 2010
4:15 pm
i think many assertions to not be accurate. pensions may be better for govt, last i checked for state of ga, salaries and bennies were generally less than private sector except for perhaps rural areas where no telling how much income people do not report. most of the abuses in state pension system have been mitigated over the years but every now and then one may try to sneek thru but wooten usually catches them.
Gerald West
February 22nd, 2010
5:03 pm
Good move, Kyle! The comments were getting out of hand, way too much name-calling, bickering, and backchat, and way too little thought. Since you care enough to choose relevant subjects and compose thoughtful opinions, you should insist that reader comments address the subject at hand, not rant on their pet peaves.
The ranters should confine their comments to Wooten’s columns,so that the thinkers can air their ideas on Wingfield’s, Bookman’s and Tucker’s. That’s not censorship, just allocation!
Andy
February 22nd, 2010
5:14 pm
Maybe the discussion shouldn’t be about private vs public pension funds, but how to create a stable economy that doesn’t have all of these bubbles that we have had in the last ten years.
Baby boomers have been wiped out by three bubbles recently: the dot com bust, the housing bust, and the recent stock market bust. No pension fund, either 401-K, defined benefit, or publicly funded pension fund, can survive such downdrafts.
If we really want to make sure that retirees don’t live in poverty, we need to have an economy that is stable, that is absent these bubbles as much as possible. The only winners from these bubbles are those investment banks that make their profits from trading by capitalizing on volatility. Unless you really good at timing the market, then you have no way of winning.
State and city retirement systems are in trouble because the people who run these retirement systems were not smart enough to avoid the traps the stock market presents.
The Tar and Feathers Party
February 22nd, 2010
5:46 pm
Ah Andy, we are in the end stages of Empire, where financial manipulation replaces industrial might. We are now near the end of that stage, and what comes next is ugly, real ugly.
dewstarpath
February 22nd, 2010
5:55 pm
LA – I didn’t lie, and you are the one who has been calling
posters “girls”. You’ve been doing it as long as you have been posting.
You’re going to continue to lie, so i’m not interested in your feigned
contrition.
Kyle Wingfield
February 22nd, 2010
6:00 pm
dewstar, LA, we’ve had a good day. Let’s not go down this road.
dewstarpath
February 22nd, 2010
6:02 pm
Kyle – 6:00 pm – Agreed.
If anyone has been offended by my remarks (including LA),
I apologize.
Michael H. Smith
February 22nd, 2010
6:11 pm
Nick Gillespie’s explanation of the basic bargain might fit some State, County or City governments but it certainly doesn’t apply to Federal government workers. As cited recently Federal government employee public sector workers are paid about twice as much as private sector workers are paid, Kyle.
Gillespie’s clinch line is a rhetorical question: Who is going to pay? Taxpayers or the public-sector workers?
Take away the style and here is the real substance: Taxpayers always pay for government’s screw-ups.
One question Kyle concerning the rules: Are bureaucrats and the governments on the same footing as politicians when it applies to re-branding and re-labeling them consistent in keeping with truth and advertising or would that be considered name-calling? I mean, legally you can call a politician anything including a baloney sandwich, which in many cases would be an insult to bologna.
Michael H. Smith
February 22nd, 2010
6:38 pm
That doesn’t have all of these bubbles [bursting] that we have had in the last several years, Andy?
Sure we could discuss the subject but the answer is very simple. The best way to never have a bubble that can burst, is to never create a bubble. Like sub-prime loans, the first one was issue in 1993, which never should have been allowed. Not to foment the crowd here but we could go back to LBJ and onto the present (as in the deficit bubble now being created) picking out the bubbles that never should have been allowed to inflate. So, once again here we are back at the doorstep of Congress where most bubbles are given a birth.
TGT
February 22nd, 2010
7:34 pm
Here we go again, part 2: Is California Bankrupt?
California’s dire and ongoing budget predicament is raising a tough – and touchy – question about the state’s finances, one that some at the Capitol do not want discussed: Is California bankrupt?…Federal law prohibits states from declaring bankruptcy and without a legal framework, assertions about California’s solvency are left to interpretation. But persistent multibillion-dollar budget deficits, cash crises, tens of billions of dollars in debt and other obligations have blurred the legal distinction.
“California is deeply in debt. You could say that it’s bankrupt,” Attorney General – and presumptive Democratic gubernatorial candidate – Jerry Brown told a group of young Democrats earlier this month…
Over the next 16 months, the state has a $20 billion deficit in the general fund budget. That’s the equivalent of nearly a quarter of the current spending plan of $84.5 billion. Much of that spending is locked in because of voter initiatives and federal mandates, limiting options for lawmakers. The deficit this year is more than the state spends on higher education and prisons combined.
The state’s pension fund, CalPERS, has $16.3 billion more in liabilities than assets at the latest calculation, although that number fluctuates with the system’s investment portfolio. Adding to that, a state report released this month calculated that California also faces a $51.8 billion bill – in 2009 dollars – for the health and dental benefits of state retirees and future retirees.
neo-Carlinist
February 22nd, 2010
8:17 pm
Andy, unfortunately, Tar and Feather is right. the “bubbles” are created and “popped” for a reason, and that reason is the “redistribution” of wealth from the retirement accounts and pensions (which are usually invested in the market) to the coffers of a handful of money changers. it’s a rigged game of musical chairs and most working people (blue collar AND white collar) are too busy working to “play the market”. it’s no different than the politicians who “gamble” or wager without assuming risk (taxpayers assume the risk).
MarkatTwelve
February 22nd, 2010
8:28 pm
The pension issue is a great example of moral hazard. City Council and the mayor twice increase pension payouts with the discpline to fully fund these obligations and/or to assume various parameters that have become untentable. I asked the mayor when he was at our HOA meeting what he intended to do regarding this unsustainable issue. He told us that he would quickly establish a two tier pension system while he studied the issue. Further Councilmen Hall and Schook were going to spend 2009 developing alternatives.
To the best of my knowledge, neither has occurred.
Mike Bloomberg might be right that New York is a luxury good worth higher taxes. The City of Atlanta is not. Nearly half of those voting would like a bit more financial discipline. After a 42% property tax increase for this year, there is no stomach for further property tax increases or sales tax increase.
Elected official need to understand that moral hazard applies. Don’t do what you can afford.
LA
February 22nd, 2010
8:38 pm
Hey Kyle, just like I thought. Brown is a RINO.
UPDATE 1-New U.S. senator helps Democrats advance jobs bill
A modest job-creation bill advanced in the U.S. Senate on Monday as the chamber’s newest Republican bucked his party and sided with Democrats on a $15 billion package of tax cuts and highway spending.
Republican Scott Brown joined four other Republicans, 55 Democrats and two independents to overcome a procedural hurdle that sets up a final vote later this week.
Brown was widely hailed as a conservative hero after his surprise victory in Massachusetts last month gave Republicans enough seats to block most Democratic legislation.
http://www.reuters.com/article/idUSN2221899520100222
Michael H. Smith
February 22nd, 2010
8:52 pm
The politicians have away of fixing the gambling games they place wagers on, neo-Carlinist. The money changers in Congress should suffer the same purge, as the money changers in the temple who turned the house of god into a den of thieves. America seems to have awakened to that fact, as more and more anti-incumbent fiery is mounting. Call it a day of reckoning or as Glenn Beck calls it “a come to Jesus moment” or whatever, it is fast approaching that ugly, ugliness.
neo-Carlinist
February 22nd, 2010
9:41 pm
Michael, I don’t know that the politicians have rigged the game so much as they are placing wagers with our money. They cut a deal that it in their interests, with little regard for those who will eventually have to pay the tab. The market is where the game is rigged. Hedge fund managers and the like pump and dump stocks and short sell at a pace that no individual investor can match. “Buy and hold” used to be a sound play, assuming an individual investor could trust the financials of any given company, but with all the malfeasance and side bets (credit default swaps, dirivitives, etc.) it is the individual investor (and often the pensions funds) who get left without a chair when the music stops. And the double whammy is, with the unbridled spending in DC, the dollar continues to evaporate, so even the “stuff it in a mattress” approach is not sound, because China is crabbing the wealth that is evaporating over here.
Figures don't lie
February 22nd, 2010
11:32 pm
. . . but liars sure can figure. Most city salaries start at well below market and have not kept pace with the private sector nor have they kept pace with inflation. I say “most” because — even in the midst of furloughs, layoffs and tax increases — there have been cronies, relatives, fraternity/sorority affiliates, “yes” wo/men and “intimates” who have gotten raises and promotions. Those were not driven by performance but employees who have performed with fewer resources, no pension (that’s right, Not every city employee is in the pension plan) and no pay increase are being set up to pay the price.
Good luck, Atlanta. When you’re finished stealing from employees, you will actually have the government Wingfield and the Rebubbacans complain about.
HDB
February 23rd, 2010
12:16 am
LA: Not that current financial woes are limited only to “blue” states, but, interestingly, but not surprisingly, the top ten for state-local tax burdens in 2008: 10.) Rhode Island 9.) Wisconsin 8.) Vermont 7.) Ohio 6.) California 5.) Hawaii 4.) Maryland 3.) Connecticut 2.) New York 1.) New Jersey.
————————————————————————
….and in the majority of cases, the states with the greatest fiscal problems are led by REPUBLICANS!!! (RI, VT, CA, HI, CT, NJ). Republicans aren’t that good in managing the people’s money; look at what deficits the GOP left this nation to handle after 2008…….
96 SC
February 23rd, 2010
12:32 am
Apparently some friendly Mutual Fund Guru had a great Pay Day at the expense of the unsophisticated City of Atlanta Dunce. As usual no one is willing to make the tough decisions and the City’s Finances will go down in flames. Poor Judgment, poor Management, and plain old Incompetence is the causes of our Budgetary Crisis throughout Governments Statewide. The Budgetary Managers can’t or won’t say NO.
Let's think about the impact on Atlata
February 23rd, 2010
7:16 am
The Atlanta and Fulton County retirement systems are underfunded and, in fact, shambling toward insolvency. If a municipality under the GA constitution cannot declare bankruptcy, then the retiree commitments will consume an ever larger portion of the city budget. Services will deteriorate and taxes will rise. Taxpayer flight, white and black, will result. People will respond to these unsustainable and misguided policies rationally as they always do.
Ever been to Detroit? Maybe we can start our own local tradition of burning abandoned buildings on Halloween. For my own part, our last child graduates this year so I’m leaving after 30 years of living ITP to go somewhere with a reasonably functional government. Milton County anyone?
The Tar and Feathers Party
February 23rd, 2010
7:44 am
Go Chapter 9, and let the state try to stop you in Federal court. The city attorneys are clowns, they will lose their butts.
The Tar and Feathers Party
February 23rd, 2010
7:45 am
So hire a hire quality private bankruptcy firm, not the local yokel city clowns.
Kyle Wingfield
February 23rd, 2010
8:58 am
Figures: If not every employee participates in the pensions plans and they are still so badly underfunded, then the problem — and need for reform — is even greater than we thought.
Trying to make up for low salaries with rich pensions is a plan doomed from the start, because it encourages current officials to promise away future taxpayers’ money. The problem, as Gillespie wrote in the article linked above, is with the model — as the sad state of public pensions across the country will attest.
Kyle Wingfield
February 23rd, 2010
9:00 am
96 SC: The pension funds’ performance was actually right at their benchmarks. It’s just that it was a lousy decade for the markets. But that was compounded by the steep increase in benefits, which translates into higher liabilities.
LA
February 23rd, 2010
9:03 am
“….and in the majority of cases, the states with the greatest fiscal problems are led by REPUBLICANS!!! (RI, VT, CA, HI, CT, NJ). Republicans aren’t that good in managing the people’s money; look at what deficits the GOP left this nation to handle after 2008…….”
LOL!!!!!! You include NJ?????????? They just put a republican in office! He has already cut spending!
“RI, VT, CA, HI, CT,”
Yep, them sure is conservative states!!!!! LOLOLOL
Fix-It
February 23rd, 2010
9:44 am
Same old, government wanting to promise more than it can give, but they just pass the issue on to the next administration…
Intown Lib
February 23rd, 2010
5:39 pm
“Yes, public-sector jobs ofer more security than their private-sector counterparts, but compensation is also higher on average and the benefits, especially in retirement are gold-plated to the nines.”
WRONG.
Last time I checked, my private sector friends were making between double and triple what my public sector friends were making in the same field — often with less experience too. And the public sector pensions for City of Atlanta employees that joined in the 2000s ain’t so gold plated. In fact, they don’t exist.