Should Portland join in begging for a pension bailout?
The cities of Philadelphia, Atlanta, and Phoenix are pounding on Congress' door this weekend, crying out for billions of federal dollars to help alleviate budget problems being caused by their large unfunded pension liabilities -- the expensive contract promises they once made to now-retired city employees. These cities have some money put aside to pay the pensions, but the numbers of retirees are swelling, and the obligations to pay each of them a set amount every month for life are beginning to have a serious impact on the municipalities' budgets.
In one important sense, Portland is worse off than any of these three cities, because Portland has nothing put away to pay its retired and disabled police and firefighters, except for those hired in the last two years. Portland's unfunded liability for these pensions currently stands at nearly $2.5 billion, and the city's got to come up with it all on a pay-as-you-go basis. In other words, the money goes straight from property tax collections in any given year to the retirees and their spouses who are still alive and collecting that year. Nothing is put away for the future.
When you stack the Portland pension liability next to those of Philadelphia, Atlanta, and Phoenix, Portland's is by far the worst on a per-resident basis. According to a recent study by the Economy League of Greater Philadelphia, sponsored by the Pew Charitable Trust, here is the comparison of the three cities currently asking for bailouts -- and I've added Portland's picture in at the bottom. The Pew report uses "the most recent available audited financial statements," which I take to mean as of June 30, 2007; I use Portland's from that date:
| City | Unfunded actuarial accrued liability | Population | UAAL per capita |
| Atlanta | $1,275,249,000 | 486,411 | $2,621.75 |
| Philadelphia | $3,915,200,000 | 1,448,394 | $2,703.13 |
| Phoenix | $425,368,000 | 1,512,986 | $281.14 |
| Portland | $1,919,501,000 | 568,380 | $3,377.14 |
Of course, given the financial disasters of the past couple of months, things have gotten worse for all these cities, but it's clear that Portland's pension picture is as bleak as any. Of the 10 cities profiled in the Pew report, only Boston, at $3,589.54 per capita, was deeper in hock than Portland.
And so rather than traipsing off to Prague to watch them build streetcars, shouldn't Sam the Tram be taking a less glamorous sojourn to D.C., and leaning on Earl the Pearl and Gatsby Wyden to fork over some dough before we join Philadelphia in the Big Financial Flush?
On the other hand, what the heck? Maybe it's better to let the city go bankrupt in a decade or so and get rid of the spendy government pensions that way. If the police and firefighters don't think it can happen, they ought to check with their uncles, the airline pilots, who found out the hard way about unfunded pension obligations.
Comments (18)
Clearly, we need to get our population up. Density will save us!
Posted by Allan L. | November 15, 2008 2:34 PM
If PERS retirees give back something also, OK. Otherwise, expect more funding for streetcars and CC hotels.
Posted by Steve | November 15, 2008 3:37 PM
A stream of payments due in the future on any typical bond issue are "unfunded" too. Shall we issue bonds to cover that stream? And repeat, to infinity and beyond. Such absurdity should be so easy to spot.
Does an obligation to make good on a pay-as-you-go pension promise have precisely the same enforceability as an obligation to make a payment on a general obligation bond? It was an issue in a West Virginia court regarding whether, according to their constitution, voter approval was required before issuing pension obligation bonds to buy stocks and such.
I am more inclined to ask our State Treasurer if his expected 8 percent annual return on the investment of POBs has been a net loser or net winner.
What pray tell is the "unfunded actuarial accrued liability" on all outstanding bond payment obligations for the city of Portland? I am sure that the bond cabal would love to issue bonds for this too, so that we can buy stocks. This sort of unsoundness-by-design is insane.
If I were a Portland safety worker and the city sought to fund the pensions, with beneficiary rights confined thereafter to that fund itself just as with PERS, I would insist upon conservative investment returns just as those return estimates were resolved in the bankruptcy case between US Airways and the PBGC. Plug in conservative return estimates of 5 percent and then see how much money you would need in a fund right now to cover the cost of "termination" of the current Portland safety worker pay-as-you-go plans. You wouldn't want to low-ball such fund would you by overstating the expected returns?
Posted by pdxnag | November 15, 2008 4:00 PM
The issue isn't whether or not we can fund the retirees and service the existing debt.
The challenge is doing so doing the above while catching up on the basic infrastructure maintentance that has been neglected for years, WITHOUT DRIVING THE TOTAL TAX BURDEN BEYOND WHAT THE MIDDLE CLASS CAN AFFORD.
If we continue to pay off old debt with new debt, we will eventually reach a crossover point where the middle class and fixed income retirees can't afford to live in Portland.
Posted by Mister Tee | November 15, 2008 5:59 PM
Everyone else is on the take. Why should Portland be any different?
Posted by Musician | November 15, 2008 6:55 PM
It's a mess everywhere....local, federal and global. Maybe the whole system needs to implode and we start all over again?
As for Portland, what a bunch of idiots.
Posted by Livin la Vida Suburbia | November 15, 2008 7:05 PM
Mayor Sam will come to the rescue.
http://www.oregonlive.com/environment/oregonian/index.ssf?/base/news/1226633126256120.xml&coll=7
"The pro-transportation investment party now has complete control of the federal government, and I want to keep the pressure on," Adams said.
And the state's congressional delegation has frequently asked for locals to come up with a consensus list of priorities they all support, not an unrestrained "laundry list" of every project each city and county wants.
But Portland-area officials want more this year. "
Posted by Ben | November 15, 2008 8:15 PM
Are there any cities that are well managed? I just moved back after 4 years in Chandler, AZ and they seemed to do a really good job down there. I know they put aside 10% of their annual budget in a "rainy day" fund. They also didn't use one-time revenues to fund ongoing expenses. I know they are having no negative impact from the recession as of today.
Posted by mp97303 | November 15, 2008 8:16 PM
"Maybe the whole system needs to implode and we start all over again?"
Yup, you betcha. (wink, wink)
Paul Craig Roberts is ba-a-ack, (although he never left), with the best Big Picture, (of which bushels of unbacked pension funds are a subset), explained in layman's terms most concisely. Really, one 'read' condenses and clarifies the confusing everything every interested party is saying in every tangential direction all talking at once. And the concisely condensed Big Picture is, in brief: Blow it up. Start over.
A good place to start is in an examination of Roberts's credibility and comprehension ... he sorta invented 'supply-side economics.' Now he's a reformed ex-'conservative.'
(n.b. links are active in the original) Paul Craig Roberts [email him] was Assistant Secretary of the Treasury during President Reagan’s first term. He was Associate Editor of the Wall Street Journal. He has held numerous academic appointments, including the William E. Simon Chair, Center for Strategic and International Studies, Georgetown University, and Senior Research Fellow, Hoover Institution, Stanford University. He was awarded the Legion of Honor by French President Francois Mitterrand. He is the author of Supply-Side Revolution : An Insider’s Account of Policymaking in Washington; Alienation and the Soviet Economy and Meltdown: Inside the Soviet Economy, and is the co-author with Lawrence M. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice. Click here for Peter Brimelow’s Forbes Magazine interview with Roberts about the recent epidemic of prosecutorial misconduct.
America’s economic crisis is beyond the reach of traditional solutions, by Paul Craig Roberts, Global Research, November 14, 2008.
Posted by Tenskwatawa | November 15, 2008 9:19 PM
"Instead of falling prices mitigating the effects of falling employment, higher prices will go hand in hand with rising unemployment . . ."
I guess that means that the unemployed will have to be selling $10 apples on streetcorners.
During the last Great Depression, a good percentage of the unemployed families followed crops around the country, seeking work in the fields and canneries of America. Unfortunately this time around, those jobs have already been taken.
Posted by Grapes of Greenspan | November 15, 2008 9:41 PM
Why, that's the very same Paul Craig Roberts who is a frequent guest on the infamous Alex Jones Show, and a frequent commentator on Alex's "Infowars" website !
You wouldn't be associating with those awful, paranoid Libertarians and their talk of Fascist shadow governments, European usury cartels and false left/right dichotomies, would you Tensk ? Because that's just crazy talk.
All kidding aside, Roberts is on our side these days. Strong words and good medicine for very scary times.
Me, I've been studying up on the impending COMEX default on precious metals, and the ominous, rapid upswing in PM lease rates as of late. Perhaps as much as a 50% probability of occurring this December when the contracts are up. If ever there was a canary in the financial coal mine, that is it.
Think Weimar Republic circa 1923, or Argentina during the height of the panic almost a decade ago. Severe Recession and Hyperinflation are not contradictory, as much as we have been led to believe such is true.
Posted by Cabbie | November 16, 2008 1:04 AM
I think it's really a shame that Mayor Potter didn't have the walnuts to tackle the police/fire pension problem. He and Randy had the clout to make the tough love appeal and get some concessions, but in the end their conflicts of interest got the best of them.
Posted by Ted | November 16, 2008 10:39 AM
Just one more set of reasons why I'm really glad we're retiring at the end of 2009 and will be long gone from Portland by 2010.
Posted by Dave A. | November 16, 2008 1:47 PM
"... retiring at the end of 2009 ..."
Oh yeah, I got one of my "prophetic visions" recently, and thought someone (in leadership) should tell everybody there ain't no Social Security 'thing' after all -- that didn't work out after 70 years; so it's like, 'sorry if lotsa folks been working, waiting, all their life to be 67 and retired, to start living.' The generation before the baby boomers is the only one that there's funds for.
"... talk of Fascist shadow governments ..."
Another recent 'epiphany,' only this one is bumpersticker-size: Dubya is a tool.
Posted by Tenskwatawa | November 16, 2008 4:34 PM
"He and Randy had the clout to make the tough love appeal and get some concessions, "
I believe Randy designed the program and had full knowledge of what a sweet deal it was. Besides tehy are both (Potter and Leonard) beneficiiaries, so would you relaly expect them to cut off thegravy train?
Posted by Steve | November 16, 2008 5:18 PM
Promises are the easiest thing for politicians to make. Paying off those pensions, well, that will be a little harder. The citizens of Portland will just have to man up and pay the bill. Keep electing idiots like Sam and the bill will keep going higher. Can't say the folks who live in Portland appear all that bright but I guess they feel good about themselves at least.
Posted by andy | November 17, 2008 8:49 AM
"However, traditionally, debts that are beyond an economy’s ability to service are inflated away."
Well its not working so far. Deflation is most definitely winning.
Posted by squeezed | November 17, 2008 6:07 PM
My pension failed. So why should I pay for some other dummies pension in the form of a BAILOUT. Please pay me too!
Posted by bill poppin | December 3, 2008 7:35 AM