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Friday, March 30, 2012

Political Power of Teacher's Unions

In almost every state, teachers are automatically signed up to have their dues money diverted to their unions’ political funds. But the facts show that when “paycheck protection” laws require unions to get permission from teachers before taking money for political purposes, teachers almost always say “no.”
When teachers were given the chance to opt out of paying for the political causes of education unions, they did — in droves. The number of teachers participating in Utah plunged from 68 percent to 6.8 percent, and the number of represented teachers contributing in Washington plummeted from 82 percent to 6 percent.
Predictably, union officials fight tooth and nail against “paycheck protection” laws that give teachers a real choice about how their money is spent.
It is well-recognized that if you take away the mechanism of payroll deduction you won’t collect a penny from these people, and it has nothing to do with voluntary or involuntary. I think it has a lot to do with the nature of the beast, and the beasts who are our teachers.”
—Robert Chanin, former NEA general counsel
Money & Power
It’s well known that education unions are perennial political powerhouses, nationally and locally. In his groundbreaking study of teachers unions, Special Interest: Teachers Unions and America’s Public Schools, Terry Moe argues that “by comparison to other interest groups, and certainly to those with a direct stake in public education "parents, taxpayers, even administrators — the teachers unions are unusually well equipped to wield power.” Consider:
  • Fortune magazine has consistently ranked the National Education Association in the top 15 of its Washington Power 25 list for influence in the nation’s capital.
  • Over the last 20 years, the American Federation of Teachers (AFT) has given more than $28 million in campaign contributions; the National Education Association (NEA) has given almost $31 million. That's almost $60 million, more than any other organization — but that's just the tip of the iceberg. At the state level, the AFT and NEA combined to spend an additional $61.8 million on candidates and expenditures for ballot initiatives in 2008 alone. Plus, teachers unions spend millions more on uncoordinated expenditures and get-out-the-vote efforts.
  • According to The Heritage Foundation, through July 2010, unions spent almost three times as much money on campaign ads as all corporations combined.
  • According to the Reason Foundation, the California Teachers Association has spent more than $200 million on ballot initiatives, candidates for state and local office, and lobbying. They used this money not only to argue against education reforms, but also to defeat healthcare reform measures and to defeat bills which would have prevented voter fraud.
  • In retaliation for Washington, D.C. Mayor Adrian Fenty's commitment to education reform — and in an effort to remove the effective school chancellor, Michelle Rhee, who weakened tenure and got rid of bad teachers — the American Federation of Teachers dumped more than a million dollars into the 2010 Democratic Mayoral primary between Fenty and Vincent Gray.
  • Colorado saw sweeping education reforms come to the state in the form of weakened tenure and increased merit pay. How did the Colorado Education Association respond? By pumping almost a million dollars into the state. The money went almost exclusively to Democratic candidates and Democrat-backed proposals and ballot initiatives.
  • The head of the Chicago Teachers Union had this warning to any mayoral candidate in the 2011 mayor's race who didn't toe the teacher's line: "I think the opportunity is to throw the weight of 30,000 members and their families and students and teachers. I mean, we're looking at maybe 800,000 people we could affect on some level."
Due to their massive base, and the massive dues that they charge, teachers unions can both mobilize voters and spend huge sums of money to defeat ballot initiatives and candidates that they don't like. If you've ever wondered why education reform is slow in the offing, now you know: Politicians have real reason to fear crossing the unions. As Terry Moe put it, "when all is said and done, the power of the unions to block change is the single most important thing that anyone needs to know about the politics of American education."
Unions Don’t Reflect Members’ Politics
The officials who wield teachers unions' enormous political clout do so at the expense of their members, who frequently disagree with union bosses' political agendas.
Consider the numbers above: Of the almost $60 million in campaign contributions distributed by the NEA and the AFT, more than $56 million went to Democrats. That means that roughly 95 percent of the unions' money went toward Democratic candidates.
Yet, it's hard to believe that 19 out of 20 teachers are Democrats.
Indeed, looking at polling data from the 2003 National Education Study, only 51 percent of teachers who are also union members identify as Democrats. The rest identify as Republicans (25 percent) or Independents (24 percent). Republicans who join unions typically feel alienated from the organization and its political giving; a Harris Interactive poll from 2003 showed that 83 percent of Republican teachers union members felt that the union was more liberal than they were.
The Education Intelligence Agency obtained results of a massive internal survey of NEA membership and leadership, issuing a report in October 2005 titled "The NEA Pyramid: The View Changes As You Rise to the Top of the Nation's Largest Union." The report noted: "The larger a local affiliate is, the less likely the local affiliate president will reflect the demographics, philosophies and tendencies of his or her constituent members." That certainly describes the NEA and AFT at the national level.
Political Money
The NEA has long known that its political expenditures don't reflect the views of its members. According to the NEA's own "Status of the American Public School Teacher 2000-2001," only 45 percent of public school teachers are Democrats. Two internal surveys of NEA members, conducted in 1980 and obtained by the Public Service Research Foundation, showed a serious gap between spending and results:
  • As many members voted for Ronald Reagan (44%) as did for Jimmy Carter (44%)
  • More NEA members identified themselves as conservatives (27%) than liberals (21%)
  • A large number — 29% — said they did "not trust" the union
Left-leaning recipients of teachers’ forced NEA dues:

American Rights at Work
Americans United for Separation of Church and State
Asian American Legal Defense and Education Fund
Asian Pacific American Labor Alliance
Ballot Initiative Strategy Center
Business and Professional Women/USA
Campaign for America’s Future
Center for Community Change
Center for Policy Alternatives
Children’s Defense Fund
Communities for Quality Education
Communities United to Strengthen America
Congressional Black Caucus Foundation
Congressional Hispanic Caucus Institute
Democratic GAIN
Democratic Leadership Council
Early Vote Denver
Economic Policy Institute
Gay, Lesbian and Straight Education Network
Human Rights Campaign
Joint Center for Political and Economic Studies
Labor Council for Latin American Advancement
Latina Initiative
Leadership Conference on Civil Rights
League of Rural Voters
Mexican American Legal Defense and Educational Fund
National Association for Bilingual Education
National Council of La Raza
National Partnership for Women & Families
National Women’s Law Center
People for the American Way
RainbowPUSH Coalition
Sierra Club
Southern Christian Leadership Conference
The Citizenship Project
The National Coalition on Black Civic Participation
The Task Force Foundation
Women’s Campaign Forum
Women’s Voices, Women Vote
Working America

Ballot Initiatives:

Arizona Minimum Wage Coalition
Citizens for Education
Citizens Who Support Maine’s Public Schools
Citizens United to Protect Our Public Safety
Coloradans for a Fair Minimum Wage
Coloradans for Excellent Schools
Coloradans for Responsible Reform
Committee to Protect Our Children’s Legacy
Conserving Arizona’s Future
Creating Arizona’s Future
Give Missourians a Raise
Give Nevada a Raise
Nebraskans Against 423
Nebraskans for the Good Life
Not in Montana: Citizens Against CI-97
Ohioans for a Fair Minimum Wage
Utahns for Public Schools

Left-leaning recipients of teachers’ forced AFT dues:

Alliance for Retired Americans
American Friends of Yitzhak Rabin Center
American Rights at Work
Americans for Democratic Action
Asian Pacific American Labor Alliance
Ballot Initiative Strategy Center
Center for National Policy
Center on Budget and Policy Priorities
Children’s Defense Fund
Citizens for Tax Justice
Coalition of Labor Union Women
Committee for Education Funding
Congressional Black Caucus Foundation
Congressional Hispanic Caucus Institute
Economic Policy Institute
Labor Council for Latin American Advancement
Labor Project for Working Families
Leadership Conference on Civil Rights
National Association for Bilingual Education
National Black Caucus of State Legislators
National Conference of Democratic Mayors
National Labor College
Pride at Work
The American Prospect
The National Coalition on Black Civic Participation
The National Public Pension Coalition
Union of Palestinian Teachers
William J. Clinton Foundation
Women’s Policy, Inc.
Workers Independent News

Ballot Initiatives:

Citizens for Education
Citizens Who Support Maine’s Public Schools
Coloradans for a Fair Minimum Wage
Give Missourians a Raise
Ohioans for a Fair Minimum Wage
Misc. initiative contributions

Thursday, March 29, 2012

Providence Bankruptcy Seen as Unavoidable on Budget Gap

By Brian Chappatta and Romy Varghese - Mar 28, 2012 - BLOOMBERG

Providence (1055MF), Rhode Island’s capital and biggest city, probably will seek bankruptcy court protection to deal with a budget deficit, Robert Flanders, the state- appointed receiver for nearby Central Falls, said yesterday.
“I don’t see how they can get out of it without going there,” said Flanders, a former state Supreme Court justice and a partner at Hinckley, Allen & Snyder LLP in Providence. He put Central Falls into bankruptcy in August and has since torn up contracts with city workers and cut pension benefits.
Providence Mayor Angel Taveras has put pressure on Brown University and other nonprofit organizations to help close a budget gap of at least $20 million, while Governor Lincoln Chafee is pressing lawmakers for action on measures to curb municipal pension costs. Unsustainable retiree expenses helped push Central Falls (1058MF) into insolvency. Moody’s Investors Service cut Providence debt a step to Baa1, third-lowest investment grade, this week citing its “strained” finances.
“Bankruptcy is not the preferred option for restoring Providence’s fiscal health; it is the last option, and I will do everything in my power to prevent it from happening,” Taveras said in a statement in response to a request for comment on Flanders’ remark. “I respectfully disagree with Judge Flanders that bankruptcy is unavoidable.”
More Common
Chapter 9 bankruptcy may become more common in the near future, Flanders said in an interview before a Bond Buyer conference on distressed cities in Philadelphia. Once municipal officials become aware of how useful a tool court protection can be, it will be hard to resist, he said, suggesting as many as 20 cities a year may take the option, if it’s open to them.
“Cities are starting to challenge what they’re going to pay and not pay,” said Jon Schotz, a portfolio manager with $400 million in munis under his control at Saybrook Capital LLC in Santa Monica, California, during a panel discussion at the conference. “It’s going to be a bit of a new world over the next three to four years.”
Entering bankruptcy remains a rare move by municipalities. Since 1937, 635 municipalities have sought Chapter 9 protection, according to James Spiotto, a lawyer with Chapman & Cutler LLP in Chicago. Some states prohibit communities from doing so.
Something to Avoid
Legal analysts consider bankruptcy as something to be avoided at all costs. Governments already have the tools they need to deal with debt and budget issues, Richard L. Sigal, who teaches public finance at the University of Connecticut Law School and is a partner at Hawkins Delafield & Wood LLP in New York, said during a panel discussion at the conference.
Chapter 9 is “a lawyer’s heaven and doesn’t seem to be worthwhile,” said Sigal, who helped resolve New York City’s fiscal crisis in 1975. Even Orange County, California, the biggest municipal bankruptcy before Jefferson County, Alabama, entered Chapter 9 last year, could have gotten its finances in order by borrowing, he said.
“Bankruptcy is never a desirable option,” Chafee said yesterday in a statement. “It has broad implications and consequences in terms of bond assessments, property values, and negative national perception.”
“That is why the state of Rhode Island is taking every possible step to help our municipalities -- including our capital city of Providence -- avoid bankruptcy,” Chafee said.
Hard Choices
Many municipalities are at risk of defaulting on their debts, said William Rhodes, a partner at Ballard Spahr LLP who moderated a conference panel discussion. Some community leaders must choose between paying bondholders and maintaining vital services, such as police and fire protection, he said.
Flanders cited the need to keep paying the Central Falls workforce as a reason to seek bankruptcy. Once under the court’s wing, he cut the city’s workforce by 32 percent and trimmed pensions by as much as half, while continuing to pay debts.
“The decision to file Chapter 9 is not the cause of the municipality’s dire financial condition -- it’s the remedy,” Flanders said. “Do you want to die an inevitable financial death by being unable to meet your obligations and defaulting, or do you want to get right financially by coming up with a plan of reorganization?”
In Providence, Taveras rebutted Flanders’ view of the situation for his city.
No Central Falls
“Providence is not Central Falls,” Taveras said. “We’ve already accomplished much in our work to put Providence back on firm financial ground.”
A Providence bond maturing in January 2021 traded today at 97.57 cents on the dollar, yielding 4.84 percent, compared with 109.71 cents on the dollar, or 3.25 percent, on Jan. 3.
Naomi Richman, a Moody’s managing partner in public finance, said she is monitoring how municipal-bond issuers view bankruptcy. In the 1980s, the stigma attached to seeking court protection declined for companies and has more recently started to fade for individuals who take that step, she said during a panel discussion.
Whether the perception of municipal bankruptcy will also change is “something we’re watching and cautious about because you can see more if there is a perception that the outcome is favorable,” she said.
“Central Falls’ bankruptcy came with painful experiences for residents, employees, and retirees -- lessons that should discourage anyone from thinking bankruptcy is a quick, easy fix to complex financial problems,” Chafee said. “Bankruptcy should be pursued only when there are no other options, and I will continue to push for passage of my legislative package so that other municipalities do not go the way of Central Falls.”

Tuesday, March 27, 2012

Public Pension Fixes Can Fill Gaps and Avoid a Big Ruckus

By the Editors - Mar 25, 2012 - BLOOMBERG

The hullabaloo over cutting public employee retirement benefits and collective bargaining rights has died down, but the pension funding crisis hasn’t. It has gotten worse.
Experts disagree over the numbers, but Joshua Rauh, a Northwestern University finance professor, calculates that public pensions may be underfunded by $4.4 trillion, up from $3.1 trillion in 2009. Bloomberg Rankings data show that states are also falling behind on retiree health care: Of the $627 billion they are projected to owe, almost 96 percent isn’t financed, up from 95 percent in 2009.
Health-care benefits aren’t usually guaranteed by contract, but public pensions are. Taxpayers must make good on those promises, or the promises must be reduced. Either way, the politics can be toxic, as a pair of Midwestern Republican governors have discovered. Wisconsin’s Scott Walker, who spent much of 2011 trying to limit public workers’ bargaining rights, could face a recall election in June. And Ohio’s John Kasich, who pushed through a similar measure, saw voters repeal it in November.
Pension plans are going broke because state and local governments assumed wildly optimistic investment returns, allowing them to promise rich retirement benefits without paying for them. The financial crisis, the recession and agonizingly slow recovery, and record-low interest rates have also depleted pension funds. And while it wouldn’t be correct to blame public employees, they and their unions have gone along for decades as government bosses found it easier to offer a dollar of future pension benefits than a dollar of wages.
Crowding Out
There are no pain-free solutions, but it’s possible to deal with public pensions without the Sturm und Drang of 2011. If the shortfalls aren’t addressed, cities, counties and states will have to dip into tax collections to pay for pensions, crowding out much-needed spending for public works, police and fire departments, schools and other things taxpayers need or want.
The National Conference of State Legislatures reported on March 14 that, since 2009, 43 states have enacted a soupcon of reforms, including increasing employee contributions, adding to the number of years of service before benefits begin, slightly increasing retirement ages and lengthening the final years of salaries on which payouts are calculated. Almost all of these changes affect only new hires.
That’s a relief to existing workers and retirees, considering that the average annual pension benefit is a not-so- princely $23,000, according to the Center for Retirement Research at Boston College. But it means the pile of unfunded liabilities remains. Ending abuses, including pension spiking (piling on overtime hours in the last year of employment to boost a pension payout) and double-dipping (retiring on a full pension one day and returning the next as a new hire at the same salary) helps, but saves only a modest sum. And revoking union collective bargaining rights is a political sideshow.
The best way the states can whittle down unfunded promises is by adopting a more accurate measure of inflation to calculate cost-of-living adjustments. The standard consumer price index overstates inflation because it fails to account for the product substitutions people make when prices rise. A better index, called the chained CPI, more closely models actual consumer behavior and, if applied to current retirees, would allow states to reap immediate savings.
To stop the growth in future obligations -- those made to new hires -- states should gradually raise the retirement age to 67 to keep up with advances in life expectancy, now averaging more than 78 years.
Hybrid Plans
One of the most promising solutions involves so-called hybrid pension plans, which encourage or require workers to save more on their own. Most state and local government workers belong to a traditional, defined-benefit plan that guarantees a monthly pension based on salary and years of service. By contrast, most private-sector employees have defined- contribution plans such as 401(k)s to which they contribute a portion of their salary and receive an employer match.
Hybrid plans combine a less-generous traditional pension with a 401(k)-style plan. Hybrids gradually move public employers away from traditional pensions, which cost state and local governments about $3 per hour worked. Private employers contribute only about 92 cents an hour.
Traditional pensions also lack the flexibility of 401(k)s, which can be tailored to different levels of salary, job types and employer matches. True, retirement security would depend more on how investments have performed, but employers can offset some of that risk by hiring professional money managers and educating workers on investment basics, as the private sector has done for decades.
Indiana has long had a hybrid plan. Since 2005, Alaska, Georgia, Michigan and Utah have adopted one for new hires. Rhode Island alone has a hybrid that requires existing and newly hired workers to participate in the 401(k)-style plan. Employees must contribute up to 5 percent of their earnings (depending on salary), or 9 percent if they are among the one-fourth of government workers nationally who don’t contribute to Social Security.
Other states are considering hybrids. California Governor Jerry Brown has recommended a plan, while Arizona, Kansas and Massachusetts are studying them.
Union Resistance
On March 15, New York Democratic Governor Andrew Cuomo won approval from the state legislature for a basket of pension reforms. But he scaled back the most contentious piece when unions put up fierce resistance: a hybrid plan giving new workers the option of forgoing the traditional pension for a 401(k). Instead, the option will be offered only to a small slice of new hires earning $75,000 or more and who don’t belong to a union. Cuomo should have stuck to his guns.
Raising retirement ages, adjusting COLAs and requiring workers to contribute more may still not be enough to shrink the mountain of unfunded liabilities. State and local governments will have to tap taxpayers for the rest. The good news is that governments have a couple of decades to make the numbers add up. But if they don’t start now, catching up will get harder and harder.

Monday, March 26, 2012

Treasurer Points to Pensions as State's Biggest Financial Problem

3-24-12 - THE JOURNAL COURIER, Jacksonville, IL

The biggest problem Illinois faces financially is the unfunded liability of state pension systems, one state official maintains.
This was one of the issues Illinois State Treasurer Dan Rutherford addressed at a Jacksonville Rotary Club meeting Friday afternoon.
Rutherford was one of the first Central Illinois conservative Republican officials elected in years. He maintains a composure seemingly down-to-earth, posting a picture of himself with Mayor Andy Ezard shortly after the meeting. He speaks openly about the problems at hand, offering solutions based on his business background.
He shared the story about how the day after he was elected to “the most bankrupt state in America,” a 67 percent income tax increase went into effect as Gov. Pat Quinn raised the income tax from three percent to five percent.
In business, Rutherford learned that “I don’t know what I don’t know until I’m at the negotiating table,” he said. “You don’t agree to just one piece of a contract without the whole contract in front of you.”
The income tax increase did nothing to assuage the state’s debt, as it covered on the increase in the pension system.
“Every state employee deserves a fair pension, but not more than that,” Rutherford said.
He proposes a choice system in which anybody keeping the current pension system pays a higher premium.
“Illinois is a wonderful state with tremendous assets,” Rutherford said, “but we’re roaming down a track that’s going to go off a cliff. This Springfield session, we must address the unfunded liability of the pension system.”
Rutherford also touched on important community issues such as the closing of the Jacksonville Developmental Center. He attended the Commission on Government Forecasting and Accountability and doesn’t believe it is appropriate to close the facility because of the clientele and also because of the economic ramifications, as there is no plan in place, he said.
“I think it is abundantly important for government to look at its assets, as a business would, and determine the best deployment of those assets for a return,” said Rutherford, who believes the facilities should remain open but evaluated to maximize efficiency.
Rotary provides a variety of programs, including updates from public officials, President Lori Hartz said.
“We’re very happy that he accepted our invitation,” Hartz said. “I think he’s in a tough spot representing the state, but he did a great job letting us know the direction he thinks we need to go.”
© Copyright 2012 Freedom Communications. All Rights Reserved. 

Friday, March 23, 2012

Some St. Louis Retired Firefighters Get Bonus Checks

Posted:  03/23/2012 12:10 AM

ST. LOUIS • As city officials wrestle with cutting costs in the firefighters pension system, and taxpayers dig deeper for a record contribution to the fund, hundreds of retired firefighters or their families recently got something in the mail:
The checks are dividends from the pension system's Future Benefit Fund, which pension system trustees created in 1990 by diverting millions of dollars of 'surplus earnings" from the main pension fund.
About $5 million remains in the account to endow the bonuses, which are called "ad-hoc cost-of-living adjustments."
In any year when the Future Benefit Fund's investments gain value — regardless of the larger system's deficits — half of the profits are distributed to about 500 retirees, widows and children.
Vicky Grass, executive director of the pension system, said the payments are necessary to help the system's most vulnerable members. She said recipients "tell us how grateful they are for it and for the retirement  system as a whole."
The fund has paid out more than $3 million since 1997. In boom years, the bonuses were as much as $1,854; five years saw no bonuses. This year's checks are modest — a maximum of $52 — reflecting a barely positive year for investments. The total payout this year is $16,000.
Although it has not garnered much attention outside City Hall, the Future Benefit Fund is a central issue in a dispute between Mayor Francis Slay and fire pension trustees that has simmered for two years.
City lawyers point to a state law requiring the Future Benefit Fund to pay for any benefit increases. However, the pension board has covered a 1999 benefit increase — a payout for unused sick leave time — from the principal of the main pension fund. A lawyer for the pension board argues that requirement was only in effect from 1990-94, the period when state law allowed moving pension system money into the Future Benefit Fund.
Slay froze the sick leave benefit in 2010, arguing that paying it from the main fund had increased the city's costs. Pension trustees sued Slay; the mayor countersued to try to force the system to pay the sick leave payout from the Future Benefit Fund. The case is pending in St. Louis Circuit Court.
Under a plan by Slay for the city to take control of the pension system, the Future Benefit Fund assets would be returned to the main pension fund, and the bonuses ended. (The pension board already has approved a lawsuit against the city if Slay's proposal is approved.)
In court filings, pension trustees have argued the "ad-hoc COLAs" are essential to the financial health of older firefighters — whose regular cost-of-living raises start to run out after age 60 — and widows and dependents.
A Post-Dispatch review of the pension system's financial records showed that the 102 retirees who got the biggest bonuses were already making an average of about $40,000, or 14 percent more than the average pension.
The group of 102 includes the second-highest compensated retiree, former Chief Neil Svetanics, whose annual pension is about $80,000. Svetanics, currently chief of the Lemay Fire Protection District, recently resigned from the city fire pension board. He has not returned several calls for comment.
Fire pension board Chairman Leonard Wiesehan also did not return a call for comment.
Jeff Rainford, Slay's chief of staff, criticized the setup of the Future Benefit Fund but acknowledged that the way it was funded was legal. "The fact that it's allowed under the law should tell everyone the law needs to be changed," he said.
The Post-Dispatch last month disclosed how the firefighter disability program became a costly entitlement program for nearly half of retirees and how city leaders contributed to today's pension mess by adding benefit after benefit without worrying about cost.
The Future Benefit Fund is an example of those benefits won by firefighters through the political process, at the expense of taxpayers.
In 1990, firefighters and pension trustees struck a deal with city aldermen to move assets from the pension fund.
Firefighters and representatives of the pension system said that there would be no cost to the public, and that the earnings to be diverted were 'surplus," according to records kept in the legislative process.
In fact, the pension system had no surplus assets. Its unfunded obligations in 1990 were $63 million, according to financial records obtained by the Post-Dispatch through public-record requests.
The formula that set up the Future Benefit Fund was concerned only with the year-to-year performance of its investments, however, not with the pension system's long-term viability.
Under the formula, after each year between 1990 and 1994, the pension system would total its revenue — including city contributions — and subtract 1½ times its expenses.
The difference was labeled 'surplus." But it was actually about the same as what the city had contributed each year.
The total that went into the Future Benefit Fund was about $9.5 million.
An expert in local pension funding said taking profits out of an underfunded system would create bigger costs down the line.
"The fact that most of the excess revenues come from employer contributions implies a low level of assets compared to benefits," said Jean-Pierre Aubry, assistant director of state and local research at the Center for Retirement Research at Boston College. That's "not good," he said.
"Generally, plans only do this when they are overfunded. Scooping off the top is going to increase (the city's) contributions going forward."
For an average person saving for retirement, it is akin to making an early withdrawal from a 401(k). To retire with the same nest egg, he would have to make larger contributions closer to retirement.
City leaders were complicit in the deal. For every dollar the pension trustees put into the Future Benefit Fund, they put one into another fund called the City Credit Fund.
The city drew from this fund for a few years to help make its annual contributions. It gave the city short-term savings but doubled the impact on the pension fund's assets — to $19 million.
The timing couldn't have been worse. The funds were diverted just as the values of U.S. investments started to mushroom.
St. Louis is not the only city where 'surplus" earnings were taken from pension funds to pay bonuses. San Diego faces deep pension debts because of its practice of paying a "13th check" to retirees. An independent auditor in 2004 said the 'seductive concept of surplus earnings" was "a snake in the garden." If a system withdraws funds in good years, the audit warned, it will suffer in lean years. Ultimately the bill comes due.
Slay was one of the aldermen who approved the deal with a 21-0 vote in June 1990. Today, the mayor says it was an example of how little was known about pension funding just two decades ago.
Former Mayor Vince Schoemehl said he knew it was a bad deal for the city, but he signed it because he was forced to.
"I would have never signed that Future Benefit Fund if I'd had a choice, but I didn't have any political choice," Schoemehl said. "I didn't want to sign that, but when you call the guys you've been working with in Jeff City and they say, 'Vince, we're going with them,' and you talk to your friends at the Board of Aldermen, and they say, 'This is better than it was, they're backing down some, so take what you can get,' then that's how this goes."
David Hunn of the Post-Dispatch contributed to this report.

Thursday, March 22, 2012

Workers' Comp Changes Benefit MFPD, Taxpayers

Executive Editor - CALL NEWSPAPERS

March 21, 2012 - When Aaron Hilmer and Bonnie Stegman first were elected to the Mehlville Fire Protection District Board of Directors in April 2005, the district faced a myriad of fiscal problems.

As we've noted before, they foresaw the impending implosion of the unfunded liability of the district's employee pension program and had the political courage to change the defined-contribution plan to a defined-benefit plan. Calculations performed about a year ago found the old pension plan's unfunded liability would have totaled nearly $18 million if the plan hadn't been changed.

But Hilmer and Stegman also saw the escalating cost of the district's workers' compensation program.

As recently reported to the board by District Clerk Carla Juelfs, workers' compensation reforms enacted by district officials have resulted in the district's premium decreasing by more than 52 percent since 2005.

The district's workers' compensation premium totaled nearly $900,000 in 2005. This year, the district is paying $425,000 for its premium — a decrease of roughly $475,000.

Juelfs attributed the decrease in premiums and the district's loss experience to new policies established by the board and other changes made by the board and administrators.

In 2005, the board voted to hire a consultant to assist the district in reducing workers' compensation costs.

Shortly after hiring the consultant, the board voted to adopt a new workers' compensation policy.

Consider the potential for what the district's workers' compensation premiums could have been given the fact that premiums increased more than $560,000 from 2000 to 2005 — to $892,616 from $332,311.

In 2004, the district's workers' compensation and property insurance premiums totaled nearly $760,000.

That same year during the Fire District Advisory Committee for Tomorrow's Emergency Services, or FACTS, community-engagement program, participants were told to anticipate 20-percent annual increases for those combined premiums.

In 2015, workers' compensation and property insurance premiums were projected to cost $5,645,816 — a 642 percent increase over the 2004 cost.

In a March 2 memo to Chief Brian Hendricks and the board, Juelfs wrote: "The Board of Directors must be applauded for creating new policies necessary to elicit change."

Well said. Without those reforms, the cost to the district — and its taxpayers — would be staggering today.

Tuesday, March 20, 2012

Untouchable Pensions May Be Tested in California

Published: March 16, 2012
When the city manager of troubled Stockton, Calif., had to tell city council members why it was on track to become the biggest American city yet to go bankrupt, it took hours to get through the list.
Stockton, Calif., which must pay $30 million in annual pension costs, which it is told it cannot cut even in bankruptcy.
There was the free health care for retirees, the unpaid parking tickets, the revenue bonds without enough revenue to pay them. On it went, a grim drumbeat of practically every fiscal malady imaginable, except an obvious one: municipal pensions. Stockton is spending some $30 million a year to pay for them, but it has less than 70 cents set aside for every dollar of benefits its workers expect.
Some public pension experts think they know why pensions were not on the city manager’s list. They see the hidden hand of California’s giant state pension system, known as Calpers, which administers hundreds of billions of dollars in retirement obligations for municipalities across the state.
Calpers does not want cities like Stockton going back on their promises, and it argues that the state Constitution bars any reduction in pensions — and not just for people who have already retired. State law also forbids cuts in the pensions that today’s public workers expect to earn in the future, Calpers says, even in cases of severe fiscal distress. Workers at companies have no comparable protection.
Stockton is in the midst of a mediation process with its creditors that will determine by the end of June whether it will file for Chapter 9 bankruptcy, which would allow the city to negotiate reductions in its debt in court.
For Calpers, the prospect of a California city in Federal Bankruptcy Court portends a potential test of the constitutional mandate that federal law trumps state laws — in particular, the state laws that protect public workers’ pensions in California. Such a challenge could blow a hole in what experts consider the most airtight pension protections anywhere.
“Obviously, what Calpers wants is that it doesn’t come up in the process, which I think is ridiculous,” said David A. Skeel Jr., a law professor at the University of Pennsylvania who writes frequently on bankruptcy. “My view is that even the California Constitution is subsidiary to federal bankruptcy law.”
As the United States population ages and more and more public workers qualify for retirement, the cost of their pensions is growing fast, turning into a major drag on many local governments’ finances. The pension contributions that cities must make every year are rising, but their revenue, which often depends on property taxes, is not keeping up. Taxed-out residents, many of whom have lost their own pensions in the private sector, are unwilling to pay more. In tax-averse California in particular, where every tax increase must be put to a vote, officials are running out of options and some are considering bankruptcy.
Bankruptcy in America is a collective process, where creditors of a distressed company or municipality come together under court oversight and negotiate a plan to share the losses equitably, for the sake of the greater good. Some creditors may stand more toward the front of the line and others at the back, but there isn’t generally one big creditor that gets paid in full without having to get in line at all.
Yet that’s what Calpers appears to be doing.
“They will probably say it’s a statutory right and it can’t be changed by a bankruptcy court,” said James E. Spiotto, a Chapter 9 specialist with the firm of Chapman & Cutler. “I think it’s still subject to some question.”
A spokeswoman for Stockton’s city manager, Connie Cochran, said she could not discuss the city’s dealings with Calpers, citing the confidential mediation process.
When a company with a pension plan goes bankrupt in Chapter 11, it typically stops making most of its required pension contributions, just as it can stop paying many other bills. Some companies, like Northwest Airlines, even declare bankruptcy the day before a pension contribution is due, to save the cash.
Chapter 11 also permits companies to shed their pension obligations completely, if they can convince the bankruptcy judge that’s the only way they can restructure. The federal government, which insures traditional company pensions, then takes over the defunct plan and pays retirees their benefits, up to statutory limits.
There is no such backstop for state or municipal pensions. But cities, until recently, have managed to avoid bankruptcy, so there is almost no precedent for how public pensions will fare in Chapter 9.
Now that is starting to change.