Long Tail Municipal Liabilities
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Kevin G. Hall WASHINGTON — From state legislatures to Congress to tea party rallies, a vocal backlash is rising against what are perceived as too-generous retirement benefits for state and local government workers. However, that widespread perception doesn't match reality.
The proposal by Mr. Walker, a Republican who was elected in November after pledging that he would get public workers’ compensation “into line” with everyone else’s, is expected to receive support next week in the State Legislature, where Republicans also won control of both chambers in the fall. The prospect left union leaders, state and local employees and some Democrats stunned over the plan’s scope and what it might signal for public-sector unions in the state.
Charles Dharapak/Associated Press President Obama’s departure on Marine One was a photo op for mayors attending a conference in Washington. These are hard times for cities, and the mood was grim as more than 200 mayors gathered here this week for the winter meeting of the United States Conference of Mayors. Many mayors have already raised taxes, cut services and laid off workers, even police and firefighters. Now they are girding themselves for more tough times, as falling home values are belatedly showing up in property tax assessments, and struggling states are threatening to cut aid to cities. “I came in full of idealism — I was going to change my city,” said Mayor Bill Finch of Bridgeport, Conn., who has laid off 160 workers.
Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign. But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what did with the federal government’s aid. Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care.
If you live in the world according to the mainstream media, the row between state executives and unions is all about (by implication) greedy unions trying to preserve their perquisites when budget “realities” demand that they suffer. Consider this excerpt from a recent article New York Times article about the fight in New Jersey : Across the nation, a rising irritation with public employee unions is palpable, as a wounded economy has blown gaping holes in state, city and town budgets, and revealed that some public pension funds dangle perilously close to bankruptcy. Um, the “wounded economy” trashed the state budget? Funny how the article fails to point fingers at the real perp, which is the global financial crisis, brought to you by your friendly TBTF banks. Andrew Haldane, Executive Director of Financial Stability for the Bank of England estimated that the costs of the financial crisis was 1 to 5 times global GDP .
“People I don’t even know are calling me horrible names,” said Ms. Corfield, an art teacher who had pleaded the case of struggling teachers. “The mantra is that the problem is the unions, the unions, the unions.” Across the nation, a rising irritation with public employee unions is palpable, as a wounded economy has blown gaping holes in state, city and town budgets, and revealed that some public pension funds dangle perilously close to bankruptcy. In California, New York, Michigan and New Jersey, states where public unions wield much power and the culture historically tends to be pro-labor, even longtime liberal political leaders have demanded concessions — wage freezes, benefit cuts and tougher work rules.
Fabrizio Costantini for The New York Times Vacant stores in Hamtramck, Mich. This time they slashed money for boarding up abandoned houses — aside from circumstances like vagrants or obvious rats, said William J.
Cities across the nation are raising property taxes, largely citing rising pension and health-care costs for their employees and retirees. In Pennsylvania, the township of Upper Moreland is bumping up property taxes for residents by 13.6% in 2011. Next door the city of Philadelphia this year increased the tax 9.9%. In New York, Saratoga Springs will collect 4.4% more in property taxes in 2011; Troy will increase taxes by 1.9%. Scott Lewis for The Wall Street Journal John Crawford is director of finance in Upper Moreland, Pa., which is raising taxes 13.6%.
By MICHAEL CORKERY For cities and towns facing unsustainable pension costs, the end game may look something like Prichard, Ala. The financially troubled suburb of Mobile turned to bankruptcy court in October 2009 when it "simply ran of money to pay its pension obligations," says the city's lawyer R.
Meggan Haller for The New York Times Prichard, Ala., presents a worst case for public pension funds: It stopped sending checks in 2009. More Photos » Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full.
The total cost appears in a report to be issued on Wednesday by the Empire Center for New York State Policy, a research organization that studies fiscal policy. It does not suggest that New York must somehow come up with $200 billion right away. But the report casts serious doubt over whether medical benefits for New York’s retirees will be sustainable, given the sputtering economy and today’s climate of hostility toward new taxes and taxpayer bailouts. The daunting size of the health care obligation raises the possibility that localities will be forced at some point to choose between paying their retirees’ medical costs and paying the investors who hold their bonds. Government officials aim to satisfy both groups, and have even made painful cuts in local services when necessary to keep up with both sets of payments. Only a few places have tried to rein in their costs, by billing retirees for a portion of the premiums, for example.
Many of America's largest pension funds are sticking to expectations of fat returns on their investments even after a decade of paltry gains, which could leave U.S. retirement plans facing an even deeper funding hole and taxpayers on the hook for huge additional contributions. The median expected investment return for more than 100 U.S. public pension plans surveyed by the National Association of State Retirement Administrators remains 8%, the same level as in 2001, the association says. The country's 15 biggest public pension systems have an average expected return of 7.8%, and only a handful recently have changed or are reconsidering those return assumptions, according to a survey of those funds by The Wall Street Journal. Corporate pension plans in many cases have been cutting expectations more quickly than public plans, but often they were starting from more-optimistic assumptions.