Real World

This is going to become more and more common as the years move along. In watching 60 Minutes last week, I believe they pointed out how bad the situation in Illinois is. What happens when a city, town, or state simply can't pay? What happens when there literally is no money?


Alabama Town’s Failed Pension Is a Warning

Published: Thursday, 23 Dec 2010 | 4:39 AM ET Text Size By: Michael Cooper and Mary Williams Walsh
The New York Times

This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry.

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.

News Headlines

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"The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him."
Leo Tolstoy, 1897

Mrs.PatsFanInVa

Dat's what happens when you don't gots a union.

The retirees, who were not unionized, sued. The city tried to block their suit by declaring bankruptcy, but a judge denied the request. The city is appealing.

Real World

When I read that line, I figured someone in here who lacked a true understanding of the problem, would focus on it. The problem with that is the underfunded pensions in places that are unionized. See Illinois, California, NY, NJ, etc.

Union or non is irrelevent to the problem. The pension systems attached to public employees is simply unsustainable in most places. I see people in the comments tab of that article talking about how the retirees should sue the city, and how the city is obligated to pay. That's sounds good and all, but how do you pay when you have no money?

In Illinois cops can't gas up their cars at some vendor stations with state credit cards, cuz they're refused by the attendants. Why? Cuz the state doesn't pay the bill for the gas. Say it with me now, unsustainable.

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"The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him."
Leo Tolstoy, 1897

reflexblue

It seems to me that the conservatives have a hit list of who to go after, two years ago it was ACORN. Shortly after they busted ACORN (which turned out to be a bull ***** in its foundation) i started hearing of a new threat to American prosperity ... Unions.

The unions represent a very large group of middle class usually blue collar workers. The unions choose candidates that they think best represent they're members. That means they are unlikely to endorse Republicans, who for the most part represent the corporations the union members work for i.e. the very entity the unions were formed to protect they're members from.

Some how in some peoples minds its not right that someone who works in the public sector doesn't deserve a pension, but its OK in the private sector. If the city or state has contracts with both public employees and privet interests like banks that its OK to break the contract with the employees but not the banks. Corporate America are sacrosanct. So unless you're rich your a fool, a sucker to believe this crap about the entities that basically represent YOU are evil.

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I Likes Spikes.

Real World

Say it with me now flex, unsustainable. The numbers bear that out. No one should get a full pension with 23 years service, like they do at the MBTA. Unsustainable. I've got no issue with the existence of a union, or people unionizing. The outliner that is a "union" is not the problem, just like the "corporation" isn't the problem, nor the "lobbyist". It's the specific organization, person, or structure that employs that term that determines their worth, or lack there of. What I have an issue with in the cases I point out, are the unsustainable benefits packages PEU's force taxpayers to fund. They're unsustainable. If your union has a more reasonable package with it's municipality, then terrific. If your union has one similar to the MBTA, or to NTA, or the policeman's association then that's not ok. Why? Cuz it's unsustainable.

BTW, private employees don't have pensions anymore. The vast majority have 401k's and IRA's. I have an IRA here for my employees that they pay into, and I pay into as well. In the end, that is their money. The more they put in, the more I put in, and the more they retire with. How much they have when they retire, is independent of the other employees, and the employer. That's how it should be. We're seeing that pensions aren't fiscally sustainable long term. Not with fewer people paying into the general funds, compared to the rising number of withdrawers as the years move along. It's simply unsustainable. No one should work for the government, and get a six figure pension when they retire at 50. No one.

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"The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him."
Leo Tolstoy, 1897

reflexblue

When you buy a product from a company, (lets say a General Electric TV) a percentage goes to people that have a pension with the company, so your still paying someones pension. The reason towns and states doesn't have money is because they're not allowed in most cases to raise property taxes, or people vote no on raising taxes. I don't blame them i don't like paying taxes. The best idea i can come up with is to raise wages, they've gone down considerably in the last 30 years compared to what corporations have taken in in profits over the same time period. If this keeps up there will be two classes in this country, it will be like Mexico. You'll either be Rich or Poor.

I know social programs, social programs eat up a lot of money. But if wages were higher there wouldn't be nearly as great a need for social programs to help people survive.

People have to choose between paying their taxes and buy goods, you have to pay your taxes which means you can't spend as much on goods. This in turn means that corporations profits drop, the economy dips. The average income hasn't kept up with inflation and corporate profits have risen dramatically, something has to change.

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S.H.E.S.
I Likes Spikes.

Real World

I'm not sure what corporations have to do with the unsustainable cost of public employee pensions.

My property taxes have gone up every year since I've been paying them. My commercial property taxes have gone up in double digit increases in every year since 2000, except for one (2002 I think). Last year they went up 17% alone. Cities, states, and towns have plenty of money. They simply spend it poorly. Ask the people I know at the MBTA what they do all day. Give Auntie Zuchinni a call and see what her NYE plans are. Check out how many policeman in this state make over $100k a year, and how many other make $150-200k per. Professors at Umass making $200-500k per year. Illegals going to school for free. Six year city council servers recieving free medical insurance for life. The list goes on and on. There's plenty of money. It's how it's being spent that's the problem. The more the local government spends, the more it sucks in from taxpayers, and the less those working taxpayers end up having in their pockets.

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"The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him."
Leo Tolstoy, 1897

Harry Boy

Don't worry, things have already started to change, nothing is forever, when I started driving trucks I was 14 years old driving a Horse and Wagon peddling Ice & Oil all over the streets of Cambridge now trucks look like Hotel Rooms, soon your children will be driving Flying Cars.

Roll With The Punches (Time And Tide Wait For No Man)
F-ck Daylight Savings Time

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In The Absence Of Law And Order Society Will Surely Destroy Itself

PatsFanInVa

From the actual Times article posted:

The parts I bolded are to point out the facts in this case. They are important. I share RW's sense that you have to pay for benefits. However, talk about $100K, $150K, and $200K pensions elsewhere are irrelevent here.

Sticking to this case, we are not talking about fat cats gaming the system. We are talking about legislating a system and refusing to pay for it.

There are many individual factors:

- There were no super-high-value pensions here.
- There was a big decline in taxable population here (from 47K people to 27K people.)
- To get to the princely sum of $12K/year, on average, the legislature raised payouts over the years without regard to budget.

(All according to the Times article.)

Union-bashing is only important here because pensions are so typically negotiated based on Union input. Even non-union settings that have defined benefit pensions typically are following a "blueprint" set up for all workers as part of collective bargaining with the union component of a labor force.

If you hate pensions as a general principle, I suppose you can ascribe the "root" of this "evil" to unions -- otherwise, the 7.5% of the American workforce still in unions is not the problem here.

We do have some data points to work from:

1) we know there are 150 affected retirees. Not very many.
2) We know the average pension of these workers was $12,000 per year
3) We know the town's population is down to 27,000 people.
4) It is worth remembering that regardless of the number of actual retirees, there is some number of deferred vested people, who are owed benefits once they retire, but who are currently still working. This is more a footnote than an actual data point, but we can't just sit here and ignore the fact that they too will be part of the equation in the future.

The math is as follows:

- 150 retirees x $12,000 per year = $1.8 million per year

- $1.8 million divided by 27,000 residents = $66.66 per resident, per year

- Assuming a larger-than-average family size (3 kids per family,) and assuming two wage-earners (the standard), we would get 40% of all residents in the labor force. Let's knock it down to 33.3% for good measure. So multiply that yearly tax bill times 3, yielding $200 per year on average to pay what is owed to public pensions. Let's say there's 33% unemployment in Pritchard - a pretty freaking high number - and add another 1/3. That would be $300, per employee, per year.

Or, $11.54 per paycheck per worker in Pritchard, Ala.

The Times article points to some pretty obvious trends -- white flight, middle-class flight -- that make it seem likely that Pritchard, Ala., has a pretty poor population.

So a larger, more affluent population promised $12K to people for a long time, purloined their labor on the basis of this promise, and then left.

The remaining residents continued to purloin this labor based on the promise, and then refused to hold up their part of the bargain.

Using the rough math above, Pritchard, Ala., could pay what it owes by raising a $300/annum tax on workers. Usually localities use property taxes, so I don't know if the payroll tax version could even happen.

That's a little bit important, since $11.54 per check seems like less than $300 at a specific time of the year. To solve this problem, it would be nice if Pritchard, Ala., had a biweekly payment option. (The actual number is likely more like $8 per check, given all the "on-the-safe-side" math above.)

What Pritchard wants to do is default on its promises, its obligations. It wants to say "Oh did I say I was paying you $10 an hour for your work when you signed on? I changed my mind. I'm paying you $8 an hour, retroactively." Defined benefit pension promises are compensation - deferred compensation, but compensation nonetheless.

Invoking terrible, if relatively rare, cases of gold-plated pensions, and use of pensions to make fat cats fatter, is a particularly misguided tactic when we are talking about people getting $12K/year on average, and $39K/year at the highest end.

I wonder whether Pritchard, Ala., would be a high-tax or low-tax locality, measured against the national average.

I wonder how poor Pritchard is.

I wonder what arrangement the state has with Pritchard.

I wonder whether Alabama is a high-tax or a low-tax state.

What Pritchard, Ala., is doing is stealing from its workers.

What remains to be seen is whether it's really valid to say they have no choice.

Now on other pension matters - the state of affairs for NY, NJ, or California state pensions, for example - the data points will be different.

Pensions are not a social program. They are pay that people have already earned.

If you want to cry poverty and insist that you be allowed to steal from these workers once they have retired, prove your case.

The case seems far too sketchy in this case, when $11.54 per paycheck per worker solves Pritchard, Ala.'s pension "crisis."

PFnV

patsfan13

If gov spending were lower and taxes were lower companies could pay their workers more and people who work would have as much taken by the gov, btw prices would be lower too.

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