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This page contains a single entry from the blog posted on July 13, 2011 7:40 AM. The previous post in this blog was Every day they have the blues. The next post in this blog is Deck chair rearrangement under discussion. Many more can be found on the main index page or by looking through the archives.



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Wednesday, July 13, 2011

Cop and fire pension chickens coming home to roost

They're panicking in a city in Rhode Island, because the fund that the city has put aside for police and firefighter retirement is about to run dry. This kind of story amuses us to no end, because all that does is put the Rhode Island municipality in the same position as Portland, Oregon, which has zero set aside for its police and fire pension system. That's right, zero, at least for officers who have been working more than a few years. Portland just pays the benefits out of current property taxes -- annual payments that are expected to double over the next 20 years.

Here's how they're describing the situation back east:

The city, just north of Providence, is small and poor, but over the years it has promised police officers and firefighters retirement benefits like those offered in big, rich states like California and New York. These uniformed workers can retire after just 20 years of service, receive free health care in retirement, and qualify for full disability pensions when only partly disabled.

Just over one square mile, Central Falls has a tightly packed population, filled mostly with immigrant families, that struggles on a median household income of less than $33,520 a year, according to the Census Bureau’s 2005-9 American Community Survey. The typical single-family house, after a recent revaluation, is worth about $130,000. It is hard to see how anyone thought such an impoverished tax base could come up with an additional $80 million for retirement benefits. If the city were contributing the recommended amount to the plan each year, it would take 57 percent of local property tax revenue.

In Portland, the percentage is lower, but the problem is the same: Too much money going out to the public safety officers of the past, with not nearly enough money left over for a livable present or future. Portland will soon be paying more -- much more -- to retired police and firefighters than it does to current police and firefighters.

In any event, the Rhode Island case is definitely a harbinger of things to come.

Comments (15)

Well, since we don't have one, our police and fire pension fund will never run out. That's something.

Thanks for your dilligent reporting on the financial cliff that our Dear Leaders are barreling towards.

Moving out of Portland's City Limits was our solution. I voted with my feet. You can be sure they will eventually punish those who are leaving with a real estate transfer tax. Sell while you still can: the higher the property tax, the more potential buyers will have to discount their offering price to qualify for a PITI mortgage.

I don't think the pols here even get the message. After the last legislative session, the O and legislature were patting themselves on the back mightily.

Yet they did nothing about PERS and Kitz thinks he can find enough savings in health care to fix anything (which is really amusing considered hwo much he underestimated his original plan costing.)

Keep kicking the can and let someone else deal with it.

If the "city" wants set aside money today to pay a bill due some 20 years later then it should be invested in something as boring and safe as ten year treasury notes, and be deducted from the employees pay checks in a sufficient amount to cover the whole expense. Each employee must have their liberty interest recognized by allowing them to opt out entirely, and to choose their own savings plan or no savings plan at all. The federal personal income tax code that offers special inducements for saving, and thereby reducing immediately recognized taxable income, are based on voluntary participation of the subject taxpayer.

The economy will not likely begin a healthy recovery, in my estimation, until the whole public employee pension mess (paying out more than what it takes in from employees) that has developed over the last thirty years is recognized as a sham to funnel money to overpaid Wall Street slimeballs. Proof: Your own private enterprise must be recognized as a qualified investment of your own "retirement" savings, but it is not. Ever ask why? And has it also decimated small business formation?

Public employee pension schemes strip the public employees of liberty to opt-out and funnel the money to Wall Street with brutal efficiency, and with minimal transaction costs.

The best advice from the perspective of the public is to end all public participation in any pension scheme, but accommodate any public employee's individually-expressed desire to have X dollars deducted from each paycheck and forwarded to a private investment guru of their own choosing. The employee can still take full advantage of the federal income tax code tweaks, without local government offering any retirement scheme at all. This would also comply with the constitutional command upon government to treat publicly employed and privately employed people the same.

Solution: Terminate the Portland pension scheme(s) entirely. Immediately.

pdxnag: 1) Why do you put quotes around the word "city?" At over 500,000 is there any doubts that Portland qualifies?

2) The problem with your solution is that the public employees agreed to get these benefits in lieu of additional salary compensation. Dissolving the pension fund is essentially theft, as such the city should take all reasonable steps to meet their obligations. I've got no problem with them trying to drop pensions for public employees going forward, though that might make it difficult for them to find new people unless they either raise starting salaries or lower their hiring standards.

I've got no problem with them trying to drop pensions for public employees going forward, though that might make it difficult for them to find new people unless they either raise starting salaries or lower their hiring standards.

It seems to me their "standards" are pretty darn low already.

I would imagine there might just be a few qualified but unemployed folks out there these days - you know, in the real world.

By lowering hiring standards do you mean eliminating cronyism/nepotism?

There is no question the pool is stronger now for police and fire work than in years past. 5 or 6 years ago you couldn't get most members of public to apply for police work. The pension and pay seemed pretty lame to most then. Not now, they are standing in line with college degrees and character refs in hand beggin for a full time job.

I do however think it is unfair to fail to pay up pensions owed. Especially to those who risked life and limb, fought armed felons, entered burning homes, trotted around meth labs without protective gear, and so on and so on...

Dissolving the pension fund is essentially theft,

Just one minor problem, there: there is no pension fund. The obligations are there; the money isn't. There are zero dollars set aside to meet the obligations.

"I do however think it is unfair to fail to pay up pensions owed"

I also think it's unfair when people get foreclosed upon, but if they don't have money, what do you want to do?

I mean we had the idiot son (Randy et al in the legislature) making all kinds of promises on behalf of daddy (the taxpayers.) So now we just sit here stuck?

You can't really blame individual police and fire retirees for this mess. Sure, some of them were in it just for the bennies and/or unfairly gamed the system (bogus disability claims, etc.). But most cared about their work and tried to do a good job, and the police in particular had to deal with the worst that human beings can do to each other day in and day out for 20 years. To break faith with them over the pensions that were promised to them would be unfair and a bit cruel. The city does need to try to honor its past obligations as best it can.

The villains here are the police and fire unions and the feckless politicians that manage the public safety bureaus. There's clearly not enough money to go around any more, but the unions sandbag or grieve any reasonable reform attempts. They protect their older members to the detriment of their younger members, who have to live with less-generous benefits and will be the first to be laid off when service is cut to make sure retirees are paid. For their part, the politicians either have no spine to say "no", or collude with the unions to offer more lavish benefits in exchange for votes and campaign cash. In both cases the politicians cravenly or cynically kick the can down the road, calculating that it will be their successors that will have to clean up the mess.

The obligation for work already completed does not vanish into thin air. The value of the obligation for past work is an entirely different question than future pay for future work where there is no more public pension scheme. It is a strawman's argument, against termination.

For non-governmental pensions a plan that is terminated is one where no future contributions can be made to the plan. The PBGC, for private plans, considers a plan terminated the instant that the guarantor (PBGC) makes any payment to a beneficiary. Future contributions are thereafter prohibited.

The analysis gets a bit jumbled up with government pensions, as compared to private investment trusts, particularly when participants (people) are distinguished between public and private rather than classifying income as just income. We would not tolerate different tax rates for income earned by public employees versus income for private people, nor should we have a separate set of rules for the savings of public employees versus non-public employees. Everybody gets guaranteed returns, for example, or nobody.

hey nobody... I have a few problems with your assertions... back when I started working for my current employer, we looked to hire a few other people doing my same job. The candidates from MultCo and CoP were making more than I was so I am not so sure govt pays so much worse than the private sector.

I'm not sure I agree that asking someone who is scheduled to receive $100,000 a year in salary and benefits in retirement to take $80,000 a year instead is "unfair" when the average person paying the bill makes half that in their entire household.

Police and fire fighters do not have particularly dangerous jobs. Garbage men have much more dangerous jobs, Police/fire don't even crack the top 10. Who speaks for the garbage man?

Occupational death rates:

1 Logging workers
2 Aircraft pilots
3 Fishers and fishing workers
4 Structural iron and steel workers
5 Refuse and recyclable material collectors
6 Farmers and ranchers
7 Roofers
8 Electrical power line installers/repairers
9 Driver/sales workers and truck drivers
10 Taxi drivers and chauffeurs


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