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Christie Says New Pension Reform Plan Coming

Back in 2011, New Jersey Gov. Chris Christie signed into law a pension reform measure designed to eventually fix the funding status of the state’s ailing pension funds.

A big part of that law was ensuring that the state gradually began making bigger annual payments to the System. But that part of the plan hasn’t worked out, as Christie decided this year to take the funds meant for the pension system and allocate them toward balancing the budget—a balanced budget is mandated by the New Jersey constitution.

The move was highly publicized and highly scrutinized. But Christie now says he is drawing up a new proposal for pension reform in New Jersey, and he is putting on a series of town hall meetings to introduce the plan. From NJ Advance Media:

Gov. Chris Christie came to the Jersey Shore today to kick off his “no pain, no gain” summer tour to introduce a pension reform proposal, but details of a plan were scant.

The governor promised to unveil a proposal by the end of the summer to tackle the state’s economic woes, promising that unless the Democratic-controlled state Legislature enact reforms, New Jersey is headed toward bankruptcy.

“We have to pare back benefits, that’s what we have to do,” Christie declared in Long Beach.

“You cannot raise taxes enough in New Jersey to pay for the pension hole that’s been dug over the period of time that these exorbitant benefits that have been promised to people,” he said. “No on in public office, believe me, myself included, wants to come out here and say ‘I have to pare back in public benefits.’”

Christie has said a specific plan is on its way — but it won’t be unveiled yet.

When pressed by a resident at the shore town hall to discuss his plan, Christie said his office is “looking at a bunch of different options right now,” but added it won’t be ready to be rolled out until the end of the summer.

“There are going to be some really difficult things,” he said. “There’s not a lot of places left to do things except to look at a whole different variety of ways to reduce benefits or to increase contributions by employees.”

Raising the retirement age again is also on the table for consideration, Christie said.

“But even then, the bottom line is that there will be a reduction in benefits,” he said. “It’s the only way to do this.”

It appears that details won’t be disclosed for the time being. The one detail that Christie seemed comfortable revealing was that New Jersey pensioners will be looking at smaller benefits moving forward. But come September, it will be interesting to see what Christie’s proposal consists of.

The Cities Scaling Back Pension Benefits Are The Same Ones Upgrading Their Sports Stadiums

Cash-strapped cities around the country have two things in common: one, they are slashing pension costs by scaling back benefits. Two, they are spending tens of millions of dollars on building and subsidizing sports stadiums. David Sirota has more on this interesting juxtaposition:

In Chicago, Mayor Rahm Emanuel recently passed a $55 million cut to municipal workers’ pensions. At the same time, he has promoted a plan to spend $55 million of taxpayer money on a hotel project that is part of a larger stadium redevelopment plan for Depaul University.

In Miami, Bloomberg News reports that the city “approved a $19 million subsidy for the professional basketball arena” and then six weeks later “began considering a plan to cut as many as 700 (librarian) positions, including a fifth of the library staff and more than 300 police.”

In Arizona, the Phoenix Business Journal reports that regional governments in that state have spent $1.5 billion “on sports stadiums, arenas and pro teams” since the mid-1990s. At the same time, legislators are considering proposals to cut public pension benefits, while voters in Phoenix may face a pension-cutting ballot initiative in November.

In Jacksonville, Florida, officials have not fully funded the pension system leading to a recent credit downgrade by Moody’s. At the same time, city officials just approved a $63 million plan to upgrade EverBank Field.

In New Jersey, Gov. Chris Christie is trying to block a planned $2.4 billion payment to the pension system, at the same time his administration has spent a record $4 billion on economic development subsidies and tax breaks to corporations. That includes an $82 million subsidy for the construction of a practice facility for the Philadelphia 76ers

In Louisville, Kentucky, up to $265 million in state and local tax revenues were used to finance the construction of the KFC Yum! Center, which opened in 2010. Only a few years later, Kentucky legislators enacted major cuts to the state’s pension system.

Is there an economic basis for these decisions? Sports stadiums are typically considered an economic boon for the long-term business they bring to certain areas, not to mention the jobs created during construction. But a few studies negate the notion that stadiums are economically sound investments for cities. More from David Sirota:

The officials promoting these twin policies argue that boosting stadium development effectively promotes broad economic growth. But many calculations rely on controversial and dubious assumptions that have been widely challenged.

A landmark 1997 Brookings Institution study by sports economist Andrew Zimbalist concluded that “a new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment” and that few facilities “have earned anything approaching a reasonable return on investment” for taxpayers.

That finding was confirmed by University of Maryland and University of Alberta researchers, whose 2008 review of major academic research found that “sports subsidies cannot be justified on the grounds of local economic development.” In addition, a 2012 Bloomberg News analysis found that taxpayers have lost $4 billion on such subsidies since the mid-1980s.

At the same time, cuts to pension contributions are rarely described by public officials as negative for local economic growth, though economic data suggests otherwise. An analysis by the Washington, D.C.-based National Institute on Retirement Security notes that spending resulting from pension payments had “a total economic impact of more than $941.2 billion” and “supported more than 6.1 million American jobs” in 2012.

The timing is particularly bad in Detroit; the day voters approved a measure to cut their pensions was incidentally the same day the Detroit Red Wings unveiled their plan for a new, taxpayer-funded stadium.

Insiders Say Detroit’s Pension-Slashing Ballot Measure On Track To Pass

The ballots have been cast and the votes have been counted. And although Detroit officials are remaining silent on the results of the all-important pension-cutting ballot measure, a few leaks have made their way to media outlets. The consensus: the measure has enough “yes” votes to pass, according to the Detroit Free Press:

Detroit pensioners appear to have voted in favor of allowing the city to cut their monthly checks as part of the grand bargain to help resolve the city’s Chapter 9 bankruptcy, several sources familiar with the voting results told the Free Press.

Police and fire pensioners appeared to have accepted the deal by a wide margin, and while the vote was closer with civilian retirees, only an unexpected last-minute surge of “no” votes would derail the plan, according to people familiar with the voting results.

The city’s pensioners had until 5 PM last Friday to vote on the proposed measure to cut their pensions by 4.5 percent and eliminate future COLA increases. Those cuts are hard to stomach for some, but Detroit maintains that a “yes” vote would stave off even deeper cuts. The implications of a “yes” vote, according to the Detroit Free Press:

If the two separate classes of pensioners [public safety workers and civilian pensioners] vote yes, the City of Detroit would accept $195 million in upfront cash from the State of Michigan and $466 million in 20-year pledges from nonprofit foundations and the Detroit Institute of Arts to help reduce pension cuts and allow the museum to spin off. The deal for pensioners and the DIA has come to be known as the grand bargain.

If voters reject the measure, those cash infusions from the state and nonprofits fall through. That means that even deeper cuts in pension benefits will likely be necessary. Detroit Emergency Manager Kevyn Orr had originally proposed cutting pension benefits by up to 34 percent.

But it doesn’t look like that will be the case. From Freep:

Sources familiar with the vote said that although ballots mailed at the last minute have not yet been tabulated, a high percentage of public safety pensioners — classified under the Police and Fire Retirement System class — voted yes to accept a reduction in annual pension inflation adjustments from 2.25% to 1%.

It’s closer among civilian pensioners — classified under the General Retirement System class — the sources said.

Two people familiar with the situation said that with last-minute votes yet to be counted, more than 70% of GRS [General Retirement System] voters had voted yes.

The plot thickens just a bit here, because a simple majority isn’t enough to pass this measure. There are two classes of voters: public safety workers and civilian workers. Both classes must have a majority of “yes” votes. And the “yes” votes from each class must represent at least two-thirds of the dollar value of the debt owed to them.

The results of the vote don’t have to be publicly revealed until July 21. But even then, the measure can’t yet go into law. It needs to be first approved by a bankruptcy judge.

Detroit Gives Raises to City Officials As Vote Nears to Cut Worker Pensions

Detroit’s high-profile bankruptcy has filled the front pages of newspapers across the country, and it seems the new twists just keep coming in this drama. In one corner, public employees and retirees are getting ready to vote on a measure that would cut their paychecks and pensions in unprecedented ways.

In the other corner, Detroit’s Emergency Manager Kevyn Orr is drawing flak for awarding raises to many city officials, including the mayor, city council members, and some non-union city workers:

Effective July 1, they all get 5 percent raises. Before the raise, Mayor Mike Duggan earned $158,000 a year, and Detroit’s nine at-large council members made $73,181 each, along with a pension, cell phone, city car and city-paid gasoline.

By comparison, the median household income in Detroit was $25,193 in 2011, according to the U.S. Census Bureau. Orr’s own salary of $275,000 a year to guide Detroit through the largest municipal bankruptcy case in history will not change.

“We’re still in the middle of bankruptcy, we still don’t know what the cost is going to be, and it seems like the attorney fees, right now, have gone up to $75 million,” [Wayne County Executive Robert] Ficano said live on WWJ 950 Wednesday morning.

Orr’s office says the costs for the increases are covered in the city’s restructuring plan, which is pending in federal bankruptcy court. Later this month, some of those same workers will see larger paycheck deductions earmarked for increased pension contributions. Deductions of 4 percent to 8 percent will begin July 14 to help fund pensions.

Back to the vote: the stakes are high for both the city and its workers. If workers and retirees vote “yes” on the measure, they’ll be giving up big chunks of their paychecks and benefits. If they vote “no”, they’ll likely have to settle for a far worse deal:

Hundreds of millions of dollars in pledged foundation and state money to spare deeper cuts from pensions and to save the city’s art collection depends on approval of the city’s plan by workers and retirees. If they vote against it, the pledged donations vanish. This may be the proponents’ most convincing argument: Vote for the city’s deal, or cuts — as much as 4.5 percent from some retirees’ pensions as well as smaller than expected cost-of-living increases — will get far worse.

If they go along with the deal, retirees and workers would also agree to give up lawsuits challenging cuts to their pensions. Though a federal judge here has made it clear that he believes pensions may be cut in bankruptcy, the Michigan Constitution includes protections, and opponents of the city’s plan say they cannot believe their colleagues would even consider ceding legal challenges.

Meanwhile, another struggling Michigan city, Flint, is considering following in Detroit’s footsteps by declaring bankruptcy. Flint is attempting to cut its retirees’ benefits to improve its financial position. But the legality of that move is dubious and will be decided by a judge soon.

Flint once had 200,000 residents has seen a dramatic drop in population over the past several decades. The birthplace of General Motors (NYSE: GM) has lost many factory jobs and abandonment of properties.

Last year, Detroit became the largest municipality in the U.S to enter Chapter 9 bankruptcy. Flint is about an hour away and if the judge rules against the city’s effort to cut its retiree health care benefits, the city is expected to file for bankruptcy. Flint will join dozens of cities and counties that have sought help from courts to modify their retiree benefit system.

“If we don’t get any relief in the courts … we are headed over the same cliff as Detroit,” said Darnell Earley, the emergency manager of Flint’s finances. “We can’t even sustain the budget we have if we have to put more money into health care for city workers.”

Photo Credit: University of Michigan via Flickr Creative Commons License

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