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$1.4 trillion in State Pension fights foreshadowed in RI, yes, but even a bigger problem in NY (the 2nd most indebted state in the nation)!

October 8, 2012

$1.4 trillion in state pension fights  foreshadowed in Rhode Island

Published October 07, 2012 Associated  Press

Retired social worker Jim Gillis was told his $36,000 Rhode Island state  pension would increase by $1,100 next year to keep up with inflation.

But lawmakers suspended annual increases, leaving Gillis wondering how he’ll  pay medical bills and whether he’d been betrayed by his former  employer.

“When you’re working, you’re told you’ll get certain things, and you retire  believing that to be the case,” Gillis said.

He and other retirees are challenging the pension changes in a court  battle that’s likely to have national implications as other states follow Rhode  Island’s lead.

Cities and states around the country are shoring up battered retirement plans  by reducing promised benefits to public workers and retirees. All told, states  need $1.4 trillion to fulfill their pension obligations. It’s a yawning chasm  that threatens to wreck government budgets and prompt tax hikes or deep cuts to  education and other programs.

The political and legal fights challenge the clout of public-sector unions  and test the venerable idea that while state jobs pay less than private-sector  employment, they come with the guarantee of early retirement and generous  benefits.

The actions taken by states vary. California limited its annual pension  payouts, while Kentucky raised retirement ages and suspended pension increases.  Illinois reduced benefits for new employees and cut back on automatic pension  increases. New Jersey last year increased employee retirement.

Nowhere have the changes been as sweeping as in Rhode Island, where  public sector unions are suing to block an overhaul passed last year. The law  raised retirement ages, suspended pension increases for years and created a new  benefit plan that combines traditional pensions with something like a 401(k)  account.

“This saved $4 billion for the people of Rhode Island over 20 years,” said  state Treasurer Gina Raimondo, a Democrat who crafted the overhaul. “Rhode  Island is leading the way. I expect others to follow, frankly because they have  to.”

Public employee unions say Rhode Island is reneging on promises to  workers.

“What they did was illegal,” said Bob Walsh, executive director of the  National Education Association Rhode Island. “We’re deep into a real assault on  labor. It worries me that people who purport themselves as Democrats do  this.”

The court case foreshadows likely battles elsewhere as states grapple with  their own pension problems. In the past two years, 10 states suspended or cut  retiree pension increases; 13 states now offer hybrid retirement plants that  combine pensions with 401(k)-like plans.

“Forty-three states from 2009 to 2011 did something, but in many cases  something was not enough,” said David Draine, a researcher who tracks pension  changes at the Pew Center on the States.

States are discovering the political challenge of reining in pensions is only  one step in a battle ultimately won or lost in the courts.

A plan to enroll new Louisiana state workers in a 401(k)-like retirement plan  is being challenged by retirees. New Hampshire is defending a law that cuts  pension benefits and increases employee contributions.

California Gov. Jerry Brown last month approved higher retirement ages and  contribution rates for some state workers and a $132,000 cap on annual pension  payouts.

The state’s two main pension funds—the California Public Employees’  Retirement System and the California State Teachers’ Retirement System—are  underfunded by $165 billion.

Brown said the changes may lead to bigger pension reforms in the future.  Unions are ready for a fight.

“Any additional pension reform they try to do will be met with serious  opposition,” said Dave Low, of Californians for Retirement Security, which  represents 1.5 million public workers. “Public employees have become the  whipping boy.”

Unions note that states have long neglected to contribute enough to pay for  promised benefits. In 2010, 17 states set aside no new money for pension  benefits. Kentucky hasn’t made its share of pension contributions since 2004. In  the past decade, Kansas and New Jersey haven’t paid their full shares a single  year, and Illinois has done so only once.

Steep pension fund investment losses made the situation far worse—a federal  report says state and local pension plans lost $672 billion during fiscal years  2008 and 2009. Longer-lived retirees, higher health care bills and pension  increases also drive costs.

In Rhode Island, 58 percent of retired teachers and 48 percent of state  retirees receive more in their pensions than in their final years of work.  Before Rhode Island’s reforms passed in November, its pension costs were set to  jump from $319 million in 2011 to $765 million in 2015 and $1.3 billion in 2028.  The state’s annual budget is $7 billion.

Passing the changes wasn’t easy. Public employees rallied at the Statehouse  and jeered lawmakers during floor debate. Firefighters lined the walls of  committee hearings.

Rep. Donna Walsh called the vote the “most heart-wrenching, gut-wrenching  vote” she’d cast in 12 years as a lawmaker.

One of the biggest changes involved putting off pension increases for five  years, and then only if pension investments perform well.

North Providence retiree Jamie Reilly left her job as a secretary at age 50,  thinking her 30 years of state employment would mean good benefits during her  later years. But now she said she may be forced to re-enter the workforce at age  55 because the state has put off pension increases.

“I counted on that money,” Reilly said of the increases, which she estimates  would have started at $700 to $1,000 a year. “I retired knowing I was going to  get a certain amount of money. You work all your life and you plan, and they  take it away from you.”

Cranston firefighter Dean Brockway said higher retirement ages mean he will  have to work several years longer than he expected, and he wonders how he’ll  climb stairs in heavy gear in his 60s. Brockway, who has nearly 30 years on the  job, said reducing benefits could make it harder to recruit public safety  employees.

“Could I do something else? I don’t know,” he said. “A lot of us chose to  dedicate our lives to public service because to us it’s an honor. Could I be a  carpenter? I don’t think so. This is what I do.”

State leaders, however, said they had no choice but to reduce benefits  taxpayers cannot afford. Otherwise cities might have gone bankrupt and current  workers would have no retirement security, Raimondo said.

“These problems won’t go away,” she said. “The longer you wait, the bigger  the problems get. People looking for easy, short-term solutions. … Well, there  are none.”

NY, the 2nd most indebted state in the nation!

$4 trillion in state debt, led by pensions

By Steve Malanga on September  7, 2012  2:33 PM

            State Budget Solutions has totaled up state debt, charting everything from unfunded pension liabilities to bond debt to borrowings by states to finance their unemployment trust funds. The total is a whopping $4.14 trillion. Pension debt, calculated using a market-valuation approach which assumes a lower rate of investment return than government pensions project, makes up more than half of state debt. Unfunded post-employment benefits, mostly health promises to retirees, adds another big chunk of debt, estimated at $627 billion. Below are the states with the greatest debt, and the amount of pension debt in each of those states.most indebted states.jpg

For local governments, relief is spelled  ‘M-A-N-D-A-T-E’ (and that includes relief from skyhigh pension costs)

11:38 PM, Oct 2, 2012   | Joseph Spector, Albany Bureau Chief
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ALBANY — The Cuomo administration on Tuesday defended its efforts to limit unfunded mandates on local governments, saying they have capped Medicaid costs and reformed the pension system. (but those limited reforms, which will only help in the future, do nothing as to the immediate problem)But it wasn’t enough for local leaders and the state’s School Boards Association. During a two-hour panel discussion Tuesday, local government officials said the state’s moves have been helpful, but more are needed.

“What we are seeing right now is governing by triage,” said Stephen Acquario, executive director for the state Association of Counties. The state’s 57 counties outside New York City, as well as towns and smaller cities, are developing their budgets for the 2013 fiscal year, which starts January 1.

Local governments said they are being squeezed by revenues that aren’t keeping up with growing costs, particularly pension expenses for employees and state-mandated programs…

10/02/2012 By: Erin Vannella YNN

“Doing less with less” was part of the message for local and state leaders at a forum at the Rockefeller Institute of Government Public Policy in Albany.  The topic of discussion? Unfunded mandates and how they affect local governments.    

ALBANY, N.Y. — “With the increase cost in state mandates exceeding the amount that we can raise in property taxes with the two percent tax, we’re having to cut local services,” said Rensselaer County Executive Republican Kathy Jimino.

Enough is enough say New York’s county leaders. They say unfunded state mandates are crippling local economies by requiring services that the government is not providing money to help pay for.

It’s a statewide problem that leaders on the local and state level discussed in open forum in Albany Tuesday. Cuomo’s cap on Medicaid costs and pension system reforms, many said, aren’t enough…

But while talking about it may bring some peace of mind, local leaders demand movement with everything from education to pension plans hanging in the balance…

Comptroller Releases 2012-13 Employer Pension Contribution Rates

Posted on August 29, 2011 by NYSAC

This week, New York State Comptroller Thomas DiNapoli announced the average local government employer pension contribution rate will rise from 16.3 percent to 18.9 percent of payroll for the general government Employee Retirement System (ERS), and for the Police and Fire Retirement System (PFRS) will increase from 21.6 percent to 25.8 percent.

These new rates will be paid by counties in December of 2012 and they continue the recent trend of double digit cost increases related to pension contributions for counties…

[Look folks it’s this simple, NY’s public (funded) pensions are not doing well, are not fully funded for the future, but rather only for the current fiscal cycle, and this is how: The state has jacked up the municipal contribution rates, they like to call the employer contribution rates, and who is the employer? You, the taxpayer! They up the rates to the municpalities and in turn your municipalty has to tax you more, cut programs to make up money, or in most cases both! That’s it in a nutshell.]

{Oh and by the way, DiNapoli is a Union shill, they funded most of his campaign, and he has fought pension reforms at every turn!}

NY State Association of Counties 2012 Resolutions

PDF Full report, See pages 8, 31, 55 with respect to demands to mandate relief including the need for greater pensions reforms.

Senate Dems Raise Big From Labor, Pool Money

October 5, 2012

Senate Democrats this afternoon are reporting having raised tens of thousands of dollars from the alphabet soup of major unions and labor organizations including 32BJ, UFCW, AFL-CIO and DC 37. Their campaign filing also shows that much of the top line totals also came thanks to transfers in from incumbents and candidates running in competitive races. The…
[And you wonder why we can’t get reforms, this is largely why. The unions control the Dems and the Dems control the state. In the states like NY and CA who have the biggest problems with public pensions, the unions have huge power and control and they funnel all their money to the Dems to make it and keep it so (except for a throwing a few bones to a few select Reps to make it themselves look good, and those Rep’s are either unchallenged or RINO’s).]
[An additional reminder: NY has the highest ratio of public sector unionization in the country (while CA has the highest total number)]

Cuomo keeps ducking comprehensive mandate relief

September 20, 2012 E.J. McMahon

Asked what the state might do to help fiscally distressed upstate cities, Governor Cuomo today said his administration was “looking at various approaches to help cities more on an individual basis than on a collective basis.”

That would seem to indicate the governor will continue to avoid taking a position on comprehensive reforms favored by a broad cross-section of municipal officials, such as repeal or modification of the state law giving police and fire unions the option to seek binding arbitration of their contracts.  He can’t duck this question indefinitely, though, because the arbitration provision sunsets next June 30.  That means the law cannot be extended without his signature.

Other potential comprehensive mandate relief reforms ignored by the governor include repeal of the Triborough amendment and the establishment of a statewide floor under public employee contributions to health insurance plans, as was recommended four years ago by a local government efficiency commission headed by Mario Cuomo’s former lieutenant governor, Stan Lundine, whom no one would confuse with Scott Walker.

Since the state has no spare cash, any “individual” help Cuomo provides to local governments seems likely to be token or gimmicky, like the spin-up of AIM funds this year.

Should Congress be concerned about a pension bailout?

By Eileen Norcross on October  3, 2012 11:32 AM

Pensions & Investments considers this question, the recent proposal of Senator Jim DeMint (R-S.C.), and the state of Illinois’ pension system in its latest online edition.The article includes my thoughts on whether Congress is right to be concerned and what form a bailout might take as well as interviews with union officials who dismiss the notion…

  The IGM Forum Survey conducted by the University of Chicago asks professional academic economists to vote on topical economics subjects. One of this week’s questions: Do you think that public sector plans are using discount rates that are too high? The answer:
                                        was resoundingly, “yes.” Ninty-eight percent of the 39 economists surveyed agreed that public plans are using discount rates that are too high. More on the poll and the respondents which includes many notable economists can be found here.

Pension accounting changes don’t satisfy economists

By Zachary Janowski on June 25, 2012

More on New York’s troubled cities

September 25, 2012 E.J. McMahon
State Comptroller Thomas DiNapoli has announced a “fiscal stress monitoring system” to provide an early warning of problems in local governments and school districts, which can only be a good idea. DiNapoli’s office also issued a report analyzing economic and fiscal trends in cities from 1980 to 2010.

A key finding:

The largest cost drivers for cities over the past 30 years have been personal service costs as well as health insurance and workers compensation. Pension costs have increased in recent years due to poor market conditions. Health care costs have risen significantly since the 1980s. Not surprisingly, given the economic backdrop for many cities, the above indicators show that many of New York’s cities, especially in upstate New York, are undergoing significant fiscal stress. In addition, some other cities with stronger economic bases are also experiencing problems, primarily as a result of poor management decisions, such as an over-reliance on non-recurring revenues, to balance budgets.

There some are interesting numbers in the report, including estimates of per-capita expenditure and personal income growth for cities during the 30-year period. Unfortunately, the total numbers may be somewhat distorted and comparisons hampered by the apparent inclusion of school budgets for the four cities in the sample (Buffalo, Syracuse, Rochester and Yonkers) that have fiscally dependent school districts. Comparing those cities in isolation, Yonkers had the higher rate of per-capita spending growth, but Syracuse had the largest discrepancy between spending and income.

Source: Office of the State Comptroller

Source: Office of the State Comptroller

In other developments, Moody’s has assigned a “negative” outlook to its credit rating for Syracuse — a move that drew criticism from former Lt. Gov. Richard Ravitch.

Meanwhile, as noted here last week, Governor Cuomo continues to distance himself from the situation, suggesting he favors “individual” assistance rather than a comprehensive approach to the fiscal problems of localities.

Public pension costs rising again

August 31, 2012 E.J. McMahon

State Comptroller Thomas DiNapoli has marked the beginning of Labor Day weekend by announcing the next wave of increases in taxpayer-funded pension costs for local governments throughout the state (except New York City, which has separate systems).

Employer contribution rates will rise by 3.1 percentage points of salary for members of the state Police and Fire Retirement System (PFRS) and by 2.0 percentage points of salary for members of the Employee Retirement System (ERS) during 2013-14 fiscal rates, DiNapoli announced.   This brings the total contribution rates to 28.9 percent for PFRS and 20.9 percent for ERS employees.


State pension fund tolls Q1 loss

August 17, 2012 E.J. McMahon

New York State’s Common Retirement Fund, which underwrites state and local pensions, returned a negative 0.92 percent on its assets during the quarter ending June 30, Comptroller Thomas DiNapoli just announced.  That would translate into a loss of about $1.2 billion on an asset base of roughly $148 billion.


The market and teacher pensions

July 5, 2012 E.J. McMahon

Recent trends on Wall Street indicate that public pension funds with fiscal years ending June 30 probably missed their rate-of-return targets for 2012.  I delve into one plan in particular — the New York State Teachers’ Retirement System — on the editorial blog at Newsday

Meanwhile, benefit payments have continued increasing at an average rate of 8 percent a year, more than doubling during the same period, according to NYSTRS’ annual financial reports.  And this, in a nutshell, is why school districts’ pension costs have risen so much, from an all-time low of 0.43 percent of teacher salaries in 2002 to 11.1 percent in 2012…

A glimmer of hope for renewed transparency

June 5, 2012 Tim Hoefer

Headed for the governor’s desk?

Reversing decades of precedent, all but one of the state’s public pension funds are now refusing to release the names of hundreds of thousands of retired employees who collect billions of dollars a year in taxpayer-guaranteed pensions.

The pension funds are citing a 2011 decision by the Appellate Division in Manhattan, which in turn upheld a lower court’s rejection of the Empire Center’s Freedom of Information (FOI) request for the names of retired New York City police officers for inclusion on the SeeThroughNY database. In a decision we’re fighting, the courts upheld the city Police Pension Fund’s claim that retirees themselves are entitled to the same confidentiality as their designated beneficiaries (usually surviving spouses).

But the Legislature may be riding to the rescue of the public’s right to know.


Building a bigger iceberg?

April 17, 2012 E.J. McMahon

New York State, its local governments and its public authorities have promised their employees well over $200 billion in future retiree health benefits that no money is set aside to pay for, as we documented in our “Iceberg Ahead” report in late 2010.  This unfunded liability translates into an enormous and growing debt that current and past generations of taxpayers have pushed onto future generations.

Unlike pensions, retiree health benefits can be reshaped for current employees and retirees–so that massive cost could be immediately trimmed. Yet, as we detailed here last year, and as the Citizens Budget Commission notes on its blog today, state lawmakers since 2011 have introduced a half-dozen bills that would effectively freeze health insurance for some or all public retirees.  (Unfortunately, the same has already been done for school district employees.)

Governor Cuomo, at least, has pushed back against the trend–unilaterally imposing higher insurance co-pays on retired state employees, to make them more consistent with what is now required of active employees.  But his action is being challenged by state labor unions in federal court.

Another step on the trail of tiers

March 15, 2012 E.J. McMahon
So, what to make of this Tier 6 pension thing?  Is it truly “bold and transformational” ?

Uh, no. Suffice to say, Governor Cuomo’s hyperbole machine is in overdrive today…

Chicago’s school pension crisis, part 2

By Steve Malanga on September 20, 2012  4:23 PM

            Mary Walsh Williams has an excellent piece in the New York Times on Chicago’s teacher pension system crisis, which I discussed on PSIlast week. Worth reading, especially if you are one of those folks who doesn’t believe it’s news until it appears in the NY Times.



So little real pension reform…

By Steve Malanga on September 12, 2012 12:00 PM

            Chicago’s schools face a growing pension burden, as I noted before, in part because the state of Illinois has refused to do meaningful pension reform. On Reaclearmarkets today I look at this problem around the country, as 40 states have proclaimed in the last two years that they have made changes to their pension systems that supposedly will save billions of dollars, yet unfunded liabilities keep rising. Why? Because most of the reforms are superficial in nature and don’t really attack the problem. One result is that payments by state and local governments into pension funds are soaring, as the chart below shows, and that’s straining budgets. pension contributions.jpg
            Continue reading So little real pension reform….

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