Pensions burden on Atlantans comes into sharper focus

If you live within Atlanta’s city limits, as I do, you are by now used to hearing about the $1.3 billion deficit for the pension plans for city employees. But if you read the first installment of the AJC’s series on public pensions in the area, the number that should have jumped out at you is the one for Atlanta Public Schools: $532.5 million more, pushing the total tab for city taxpayers to nearly $2 billion. And that’s on top of our share of Fulton County’s shortfall.

APS serves a student population of around 50,000 students, and its pension plan doesn’t even cover teachers (they’re in the state’s pension system, which is in far better financial shape). Yet, its pension deficit is larger, both in absolute terms and as a percentage of its liabilities, than any of metro Atlanta’s counties.

As bad as the deficits are, there’s a problem with focusing only on the deficits when looking at the pension plans. The more immediate threat is the enormous amount of money each jurisdiction spends each year just to keep from falling further behind.

At APS, that figure this year is $39 million, or about as much as the salaries 557 teachers. The city government spends another $125 million a year on pensions, pushing the total for city taxpayers well north of $160 million each year.

All told, almost 20 percent of the property taxes Atlanta residents pay each year goes not for wages for police or firefighters or teachers, not for parks or libraries or school buses, but for pensions. And all of that money simply maintains the status quo — it doesn’t reduce the deficits.

As the economist Herb Stein once said, if something cannot go on forever, it won’t. This is one of those things.

Atlanta Mayor Kasim Reed has proposed a pensions solution that he says will lower unfunded liabilities and cut the city’s annual payments by $40 million to $50 million. Does it amount to a less rich plan for city police, firefighters and other workers? Absolutely — but then, the plan they have now is about as rich as these things come. And Reed’s plan doesn’t attempt to claw back some of the unfunded, retroactive pension boosts from 2001 and 2005 that really put the city’s pensions in the hole (although that could happen anyway if a lawsuit by the Fulton County Taxpayers Foundation is successful).

But the city employees — and school system employees, if APS ever tries to overhaul its retirement system — would be wise to consider this question in reacting to Reed’s proposal: Is it better to receive a lesser promise that can be kept, or a better one that can’t?

– By Kyle Wingfield

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38 comments Add your comment

Ex.Sniper

March 28th, 2011
10:46 am

Solution; Immediately, reduce by fifty percent (50%) amounts currently being received by retiree’s. Cancel their medical coverage and make them pay for their own. All future retiree’s should only receive twenty-five percent (25%) of their retirement pay, and should also pay for their own medical coverage. Any Social Security they receive should be deducted from the city retirement. This action will go a long way in soving the overall budget crisis for the City of
Atlanta.

Ragnar Danneskjold

March 28th, 2011
10:57 am

Good morning all. Well written. Our friends who benefit from taxpayer largess would be well-advised to understand that cities and other entities chartered by a state (such as pension agencies) can file bankruptcy, the rarely-used chapter 9. The value of the individual claim in chapter 9 depends on the level of assets held by the filing entity, but not on the value of future tax revenues.

Perhaps some sharper-than-average attorneys are rapidly acquiring knowledge of the inner workings of the chapter, for application nationwide.

Junior Samples

March 28th, 2011
11:01 am

If you’re proposing cuts in public pensions, be prepared to accept cuts in your own 401k, health insurance benefits, or Social Security when you reach retirement.

Regardless of what you where told while employed.

carlosgvv

March 28th, 2011
11:36 am

Local Governments don’t have to worry about where the pension money will come from. All they have to do is what they have always done whenever money is needed. Raise property taxes.

TS

March 28th, 2011
12:10 pm

It seems that we just need to control the supply of money and this problem goes away.

Proposal:
Atlanta buys a printing press and creates “Atlanta FunBucks” that are initially valued 1:1 with the US Dollar. All pension payments will then be distributed in the form of $AFB. As the pension costs rise, the AFB Treasury can simply print more money to keep up with the demand. The retirees that want to spend that money then exchange it for the market price of US Dollars. As the value of the $AFB falls (I’m just speculating here) due to what I will term “Hyper FunBuck Inflation”, the value of the Atlanta pension system will eventually fall to a minimal amount of US Dollars. At that point we can worry about our taxes being wasted elsewhere.

Thoughts?

Jefferson

March 28th, 2011
12:10 pm

Sounds like your solution would be a tax cut AND cut spending (and the services that go with them). Are you suggesting we stiff the retired ?

Finn McCool

March 28th, 2011
12:16 pm

Pension and retirement is a part of salary negotiation. The company tells you –We will pay you “X” amount on a monthly basis and also sock away “Y” amount for you to take out at a later date – when you retire.

To not pay it is theft. To lower the payouts is theft.

If I tell my company, “Look I want you to pay me for a full week but I might only work 20 hours when I feel like it. Ok?”, they are going to call BS and tell me to take a hike.

Those of you who want to lower the payouts of cut them altogether, I can only hope whoever your pension holder is, they go belly up and you are left with nothing when you retire.

Independent

March 28th, 2011
12:21 pm

What would you do if your employer tells you that all the money it contributed to your 401k will now be seized and returned to the company. Would you be happy? The real problem is that the funds were never “socked away” to pay for any of those pensions, like they should have been.

buck@gon

March 28th, 2011
12:34 pm

On the student side, Jim Wooten described Georgia schools as educational holding institutions, I believe. On the employment side, one might call them paycheck holding organizations too–paying out far more than they are worth.

Finn McCool

March 28th, 2011
12:38 pm

The real problem is that the funds were never “socked away” to pay for any of those pensions, like they should have been.

Woulda shoulda coulda. If I’m a retiree, that isn’t my problem. I agreed to work for a certain amount and now I am due payment.

The answer is simple, raise taxes and quit making promises you might not be able to keep.

And, Independent, if you don’t know the difference between a defined contribution plan (401k) and a defined benefits plan (pension). One is promised, the other one isn’t.

Holly

March 28th, 2011
12:44 pm

I hear the feds will soon be seizing 401k’s…

jm

March 28th, 2011
12:52 pm

Amen Kyle. Reed should be applauded vociferously for taking on this difficult and political challenging issue. Reed is doing a fantastic job and a great improvement over our previous mayor (who was admittedly a huge improvement over Campbell).

LJ

March 28th, 2011
1:07 pm

Here is my solution- I’m getting the heck out of here.

Seriously. A few more months and I’m gone to a county/city that doesn’t burn money for fun and doesn’t have a corrupt school system. I’m moving to a city that doesn’t have a blatantly racist government, doesn’t fear its own law-abiding citizens, and doesn’t try to grab money from my pocket every chance it gets.

Perhaps this is what the local guys don’t understand- many people CHOOSE to live here(i.e. its a conscious CHOICE). The city is competing, just like a business, with other areas to attract TAX-PAYING(not leeching…) residents and businesses. When the poo hits the fan(and a whole bucket of it is currently rapidly approaching a turbine…) we can, and in my case will, CHOOSE to live elsewhere.

Yep, I’m looking forward to my lower property taxes with better schools and police protection, although with a slightly longer commute.

tar and feathers party

March 28th, 2011
1:18 pm

APS has done a terrible job of education the children, their pensions should be reduced to reflect that poor performance. I am so glad I do not live in that most corrupt of Georgia cities. Kyle, if you imagine that the State will provide you a subsidy to send your children to private school, think again. These massive deficits mean there will be no subsidies for private school tuition, and your property taxes will continue to rise to support the retired teachers who did such a poor job of teaching several generations of Atlanta children. As a retiree, I am completely free to vote with my feet should Cobb county attempt to raise my property taxes…..At age 62 Cobb county exempts me from paying the school tax on my primary residence, and if that changes, I will be walking away…….

Kyle Wingfield

March 28th, 2011
1:45 pm

Junior, Jefferson and Finn: Reed’s plan affects only current employees — i.e., not those already retired — and only going forward. So, no one is losing anything they’ve already earned.

Thulsa Doom

March 28th, 2011
2:00 pm

As Margaret Thatcher once said the problem with socialism is that sooner or later you run out of other people’s money.

The problem here is the same as with public defined benefit pension plans everywhere- they are too rich and eventually go broke. Solution? Very simple. Just give them the same thing that the private sector gets-401ks and let them manage their own money via a choice of several options. They don’t have to put it in the stock market-if they’re financially illiterate let them just put the money in safer fixed instrument funds or cds.

Thulsa Doom

March 28th, 2011
2:06 pm

Finn McCool,

Agreed. They should honor the pension guarantees they made to retirees who were in the defined benefit plan. However, going forward for new employees and or newly hired employees they should change the plan to 401k plan.

They do have the option of eventually declaring bankruptcy and shedding the pension obligations which would be devastating to pensioners such as yourself. Hopefully that won’t happen. This is the city’s fault for making all these promises on behalf of taxpayers that they should have known they would have problems living up to. Just more vote buying and corruption and passing the buck on further down the line by Atl city officials.

Finn McCool

March 28th, 2011
2:37 pm

A city in Missouri ran out of money for all its retired city workers. They just stopped sending checks.
An 80+ year old lady told the mayor he should stop drawing a paycheck too. Funny.

Finn McCool

March 28th, 2011
2:45 pm

If you had fewer Republicans trying to figure out how to live in this nation without paying the taxes that go to paying the people that make it work, you wouldn’t have a problem.

You see, you have to pay people to work as dog catcher, fireman, policeman, pot-hole filler, etc. The policeman whose job it is to protect you and your property expects to get a living wage for his/her time.

On a national level, soldiers who protect you and make it possible for you to run a business expect to get paid for giving their time.

But Republicans don’t want to pay taxes. They think it will all work just as good if we lob 75% of it off and only keep the things that they like getting – state parks, national parks, cheap postal service, a road system that works pretty good.

jj

March 28th, 2011
3:16 pm

If I avoid paying additional taxes legally what is the issue??? The issue the labor unions have with 401K’s is the employee has to contriburte something in order to get something. Ladies and gentlemen, the day of the free lunch is over. Either prepare yourself for retirement or get ready to live the rest of your life in a state of poverty. I have spent the last 35 years saving and will continue up until the day I retire, if you have not done the same why is it my problem?

bill

March 28th, 2011
3:28 pm

I know a lot of republicans that pay taxes. I am an independent and I pay taxes too. I feel we have more of a spending problem than a revenue problem. Taxpayers have to pay for promises made by folks that have no clue and get elected by voters (taxpayers!) that also have no clue. Exhibit “A” is the current crowd in office making decisions!!

khc

March 28th, 2011
3:37 pm

if benefits granted without funding them, then benefits should be rolled back in a shared sacrifice way 50per cent retirees and 50 per cent tax payers….

and any legislator/councilman who passed benefits without funding should lose their entire benefit….

td

March 28th, 2011
3:38 pm

I am torn on this issue. The voters allowed the cities/counties and states to offer these big pension plans so they should now be willing to pay for them. These entities enticed the workers to come to work for them for less money then they could have made in the private sector by offering the huge retirements.

A couple of solutions for the future: Go to either a total 401(k) or what the state employees has done and offer 30% retirement plus a 401(k). Up the time for eligibility from 7 or 10 years to at least 20 years and if you leave before you are vested then you leave the money you invested. There are way to many appointees (making huge salaries) that work the two terms of a mayor or governor and then find a place to hide for 2 years to make sure they lock in a huge retirement one day.

The city of Atlanta could take care of a great many of their problems by selling off all the land they own all over the state. They own huge tracks in Paulding and Dawson counties where they thought might be a second airport one day. They could also sell off the running of the airport to a private company and make a huge profit.

poison pen

March 28th, 2011
3:41 pm

Finn, I can agree with most of what you say, but the Dems are just as bad as the Repubs. GE is a prime example.

Jefferson

March 28th, 2011
3:45 pm

401k is a con, those who benifit the most are those who make the most

Intown

March 28th, 2011
3:50 pm

@ td: Atlanta cannot balance its books on farming out the airport to a contractor or selling airport owned land in Dawson and paulding counties. If it tried these ideas, any of that money would flow back to the airport. Plus, why the heck would someone mess with the most successful economic engine in the state. It is the WORLD’s busiest airport for heaven’s sake!

Intown

March 28th, 2011
3:52 pm

To the extent it can, Atlanta should force older workers into what it offers its newer and younger (Gen X and Y) workers. A 401(a) with 6% matching and vesting after 5 years. After that, your retirement is subject to the whims of the market like everyone else and not guaranteed by the City’s taxpayers.

wallbanger

March 28th, 2011
3:58 pm

Seems like part of the pension problem with some government workers is that they can retire so young and still draw a pension while holding another job, and thereby double dipping. Government workers ought to have to work until they are 65 prior to retirement, or their pensions should be cut drastically. Also, the retirement age ought to be raised incrementally for every worker to about 70, over a period of about 10 years, so it wouldn’t come as a shock. But we need to get started on SOMETHING!

bill

March 28th, 2011
4:21 pm

jefferson: those that make the most benefit the most?? well duh!! pay in more get out more….

Jefferson

March 28th, 2011
4:38 pm

Bill, if only thing could be so simple as you view on 401s, it is not.

td

March 28th, 2011
4:43 pm

Intown

March 28th, 2011
3:50 pm
@ td: Atlanta cannot balance its books on farming out the airport to a contractor or selling airport owned land in Dawson and paulding counties. If it tried these ideas, any of that money would flow back to the airport. Plus, why the heck would someone mess with the most successful economic engine in the state. It is the WORLD’s busiest airport for heaven’s sake!

If one is going bankrupt and there most prized asset or company can be sold to settle all of their debt then one must sell the company or the asset.

I am sure the city could get its lawyers involved and find a way to put the money from the sell of the lands into the city coffers.

Intown

March 28th, 2011
4:56 pm

@td: Nope. There is a little something called FEDERAL LAW that prevents such creativity.

tar and feathers party

March 28th, 2011
6:43 pm

If I recall correctly, under former Mayor Jubba the Hutt, the City of Atlanta tried to lease the airport to a Japanese corporation for a billion dollars or so over a period of 30 odd years. The feds struck it down, and with it a large pot of gold for the Hutt family to steal.

LJ

March 28th, 2011
8:09 pm

Finn doesn’t get it.

We pay taxes. We don’t even mind paying taxes; we just expect to actually get something for paying taxes.

If we don’t then we’ll move and your tax base will be destroyed. Simple fact is in metro Atlanta you can live in another county or city and get better services with fewer taxes. Its business, and Atlanta sucks at it.

JoeSmit

March 28th, 2011
9:42 pm

The solutions aren’t politically popular and some people will cry. But for simplicity’s sake:
1) if you are owed a pension from government you have to follow the same rules non-government employees follow. This mean you can’t retire until you are 65 years old.
2) Citizens should not have to pay for your medical after your are retired.
3) Switch everyone to a 401K
4) link up all the pension systems so government workers can’t go collecting pensions from one government to another.

Some of you are making irrational statements like “we should take your 401k” slight problem with that people, the 401k is actual money I have earned and not government my employer promised. But to compare apples to apples, if my corp employer promised me matching funds vested on a schedule and they employer went belly up; the 401k plan would be closed and monies not vested would be forfeit. In this case the cities are going to go belly up and you are about to lose monies not yet vested.

ODDOWL

March 28th, 2011
10:26 pm

Non Union workers who must pay a higher percentage of their health care cost and have a higher deductable are jealous and envious of Union workers who were able to negotiate a better deal for themselves because a Unionized fist is much more powerful than a roughed individual’s finger. Workers of America unite and unionized. Share the wealth, tax the rich, pay down the debt.

KINGRODNEY

March 30th, 2011
8:53 am

Many people don’t seem to realize that public employees are, in general, much better trained and educated. Public servants have a higher percentage of advanced college degrees and the government employs a higher percentage of professionals than the private sector. Most of us would have made at least twice as much money in the private sector but chose public service instead. Let’s face it, taxes are the price we all pay to live in a modern society. Hey, I’m a taxpayer too !!

JoeSmit

March 30th, 2011
8:28 pm

Rodney you are quoting the union meme. The reality is if you could make twice the money in the private sector why don’t you? Could it be that the benefits in the public sector are far and away superior to anything in the private sector and you get a pension with minimal service.