pension debt | Pension360

Jacksonville Pension Reform Hits Another Snag As JEA Says: “Take It Or Leave It”

Jacksonville’s pension reform proposal – if and when it passes – would require the city and public utility company JEA to borrow a combined $240 million.

But that aspect of the plan has hit a road bump, and now JEA is telling the city to accept the plan as-is or count JEA out entirely.

From the Florida Times-Union:

JEA finance and audit committee members learned Tuesday that city officials have been trying to claw back a key concession that enticed the utility to become a partner in financing Mayor Alvin Brown’s major pension-reform legislation.

That concession — which in essence would amount to a reduction in JEA’s annual contribution to the city’s general fund over 20 years — is non-negotiable for JEA and could be a tricky sticking point for city officials going forward.

“It is a take it or leave it,” committee Chairman Peter Bower said.

[…]

JEA’s annual general fund contribution currently increases by $2.5 million each year, maxing out at a total $114.2 million in 2016. That contribution formula — which expires next year — means that even as JEA’s revenues have declined in recent years, its contribution to the city has ballooned. That gulf has become a concern for JEA officials.

In exchange for borrowing $120 million for pension reform, however, the city had agreed to, in broad terms, reduce those contributions by $2.5 million for the next several years and ultimately revert to a formula linked to JEA revenues.

Those changes were to be locked down for 20 years beginning next year.

But JEA CEO Paul McElroy told audit and finance committee members Tuesday the city now wants to be able to revisit, and potentially change, the new contribution formula in as soon as five years.

That didn’t sit well with JEA board members, who said they conceptually agreed to help the city pay its pension debt only on specific terms, including the new 20-year contribution formula.

The committee will meet again in 10 days to see if staff has been able to address the issue.

The city’s pension reform measure aims to improve the funding and sustainability of the city’s Police and Fire system. JEA is a key part of that plan, because the city cannot afford by itself to shoulder the cost of the proposal.

Photo by pshab via Flickr CC License

CalPERS Encourages Employers to Make Extra Contributions Now For Long-Term Savings

CalPERS is asking municipalities and other government employers to use any extra money available to boost their contributions to the pension system — a move that is tricky in the present moment for cash-strapped cities but that would yield long-term savings.

From CalPensions:

CalPERS is encouraging government employers to make extra payments to reduce their pension debt or “unfunded liability” if budgets allow, saying millions can be saved in the long run.

Annual CalPERS reports to 1,581 local government agencies this fall began showing estimates of future savings when extra payments, going beyond the required amount, are made to the pension fund.

The Newport Beach city council approved a plan for extra payments to CalPERS last month that is expected to save $47 million over 30 years, compared to the standard payment plan.

Huntington Beach approved extra payments to CalPERS last fiscal year based on an analysis by an independent actuary, Bartel Associates, showing each additional $1 million contributed to CalPERS saves $5 million over 25 years.

CalPERS estimates that about 60 employers made 111 extra payments to CalPERS last fiscal year. The new “alternate amortization schedules” in the annual reports to local governments are a response to requests from employers.

“The message we want to get out to employers is that if they have the ability, the financial means, to pay off some of this unfunded liability, it’s a smart business move and can really benefit them over the long run,” Anne Stausboll, CalPERS chief executive officer, said last week.

Read the entire report from CalPensions here.

Unions Speak Out Against Quebec’s Bill 3, Plan Next Moves

Quebec’s controversial pension reform legislation, Bill 3, passed into law last week. The law divvies up responsibility for paying down governments $3.9 billion pension debt 50-50 between employers and employees. As a result, employees now shoulder more of the burden for paying down pension debt in the form of higher contributions.

Now, union leaders are speaking out against the law and planning their next moves. Union leaders say government officials have “started a fire”. From the Montreal Gazette:

“We’re more determined than ever,” Marc Ranger, spokesperson for the Coalition syndicale pour la libre négociation, told a press conference at the Crémazie Blvd. E. headquarters of the Quebec Federation of Labour.

“We will target municipal administrations, that’s for sure,” he said.

“Most of these mayors will not find this funny in the months to come.”

Ranger did not specify what the pressure tactics would be, but promised that after the Christmas break, municipal employees would take action that will make the public sit up and take notice.

However, he said the coalition, representing 65,000 firefighters, police officers, transport workers, blue-collar workers and white-collar employees, will steer clear of illegal actions like the Aug. 18 ransacking of city hall, which has resulted in criminal charges.

Bill 3, calling for negotiations with unions on underfunded pension plans and a 50-50 sharing of costs to refinance plans that are in the red, is the government’s response to a $3.9-billion pension shortfall.

[…]

He added that the union is prepared to take its legal challenge to the pension bill to the Supreme Court of Canada.

“They’ve started a fire. Now it’s up to them to put it out,” he said.

Chicago Suburb, Strapped With Pension Debt, Considers Privatizing Pension System

The Chicago suburb of North Riverside is straddled with pension debt, and it’s not about to get better – since the town hasn’t made its required pension payments, the state will likely withhold sales tax revenue from the suburb starting in 2016.

That’s why North Riverside is considering privatizing its fire department – a move that would rid the city of future pension costs.

From the Chicago Sun-Times:

North Riverside says its contract with firefighters expired in April and it seeks to privatize its fire protection services, turning current firefighters into employees of a private company, PSI, which has provided paramedic services to the village for decades.

Current North Riverside firefighters would work for PSI at their current salaries and with their current health insurance plan. They also would keep already-accrued pension benefits but would be folded into a 401-(k) program at PSI that would include an employer-matching contribution. Odelson says privatizing fire services will save the village in insurance, overtime, sick time and pension costs for firefighters who make more than $200,000 in yearly salary and benefits.

[…]

The state will begin garnishing sales tax revenue from North Riverside in 2016 if it doesn’t catch up on pension debt. The state can withhold all of that revenue in 2018, says Burt Odelson, North Riverside’s attorney. “When that happens,” he said, “North Riverside will no longer be able to pay their bills.”

North Riverside is a bedroom community without the home-rule power to raise taxes without voter approval. Most of its revenue is generated by sales taxes from the North Riverside Mall, but the village skipped pension payments for three years when the recession hit and tax revenue dropped.

The village now faces an operating budget deficit of $1.9 million, with $1.8 million due to pension obligations. The required payments to the firefighters’ pension fund have skyrocketed sevenfold in the last 10 years.

Unions say the idea would be a breach of contract:

J. Dale Berry, lawyer for North Riverside Professional Firefighters Local 2714 and counsel to the Associated Firefighters of Illinois, says North Riverside is obligated to keep the contract’s current provisions while it proceeds through arbitration, which he says the village is trying to circumvent. The contract, he notes, has a clause forbidding the kind of subcontracting privatization the village seeks.

“They presented this as a fait accompli,” Berry says, noting officials rejected union offers for cheaper health plans, cost cuts and an offer to help organize a consolidation with other departments. “This privatizing thing is another way to open the door to patronage, nepotism, non-merit hiring,” Berry said.

The North Riverside Firefighters Union Local 2714 has said it will sue if the fire department is privatized.

More coverage of the town’s pension funding crisis can be read here.

San Bernardino Sets Aside $10.6 Million To Repay CalPERS

When San Bernardino went bankrupt, it stopped paying its creditors, including its biggest one: CalPERS.

It suspended pension payments to the country’s biggest retirement system for a full year – those payments totaled $13.6 million.

Now, the debts have come due: San Bernardino will set aside $10.6 million from its budget this fiscal year to pay back CalPERS.

From Reuters:

Bankrupt San Bernardino has begun repaying millions in arrears to the California Public Employees’ Retirement System (Calpers) in a deal that has ended an acrimonious relationship between the California city and its biggest creditor.

San Bernardino has set aside $10.6 million in its current budget, which has yet to be published, to pay an unnamed creditor. A senior city source, speaking on the condition of anonymity because details of the Calpers deal are subject to a judicial gag order, confirmed that creditor is Calpers.

San Bernardino suspended the payment of debts to all creditors when it declared bankruptcy. Its decision to strike a deal with Calpers first, and begin paying arrears before a bankruptcy exit plan could be formulated, shows the reluctance of California cities to take on the pension giant, which insists that it must always be paid in full, even in a bankruptcy.

The city declared bankruptcy in August 2012 and suspended its employer payments to Calpers for an entire year after entering Chapter 9 protection, running up principal arrears of $13.5 million, according to Calpers.

San Bernardino began monthly payments of between $600,000 and $700,000 to Calpers in July, according to the source. A second official, budget officer for the city Dixon Mutadzakupa, confirmed that arrears payments to Calpers had begun.

It wasn’t clear whether the city was only on the hook for $10.6 million. If that were the case, San Bernardino would only be paying CalPERS 80 percent of what it owes.

It’s also possible the city could pay the remaining $3 million during the next fiscal year.

Jacksonville Pension Reform Bill Faces Obstacles As It Heads To City Council

Jacksonville Mayor Alvin Brown’s pension reform bill is headed to the City Council, where it will be scrutinized and approved by two separate committees.

But it won’t be smooth sailing for the bill, as several council members will likely push for unpopular amendments to the measure.

The bill aims to improve the funding of the city’s public safety pension system by forcing the city to make higher payments to the system – to the tune of an extra $40 million a year.

From the St. Augustine Record:

When Mayor Alvin Brown’s pension reform deal heads to a City Council committee today, the meeting will be led by a councilman pushing for several significant changes that could jeopardize the bill.

Rules committee Chairman Bill Gulliford said he’ll try to convince his colleagues to adopt one of the six amendments he’s proposed to the pension package, which was based on negotiations Brown conducted earlier this year with the Police and Fire Pension Fund.

Gulliford’s amendments would seek further reductions in pension benefits for current police and firefighters, which the pension fund rejected during negotiations.

If the council approves any amendments to the pension deal, the pension fund’s board also must approve the changes.

Brown has touted his deal as the city’s best shot yet at fixing its pension crisis and its looming $1.65 billion pension debt. He has said the deal would save the city $1.5 billion in the next 35 years.

[…]

In recent weeks, some council members questioned the deal’s merits.

The leading criticism: Brown hasn’t identified a realistic funding source for the $400 million more the city and its taxpayers will contribute to the fund over 10 years — on top of the yearly required amount — a major component of the deal’s saving.

The extra $40 million per year in contributions would expedite the paydown of the city’s debt obligation to the pension fund and save money over the long haul, just as homeowners benefit by making extra payments on their mortgages.

Brown’s legislation would use money from the pension fund’s reserve accounts to cover this year’s $40 million payment and then $21 million in the 2015-16 budget. But there isn’t a definitive plan yet to pay the rest.

Other critics say current police and firefighters really didn’t sacrifice anything to help resolve the pension plan’s woes.

For the bill to pass, ten council members need to support it. Currently, only seven council members are on board.

California Attorney: Bankruptcy “Not a Practical or Desirable” Way To Cut Pensions

Teague Paterson, an attorney from Sacramento specializing in labor law, has penned a column in Monday’s Sacramento Bee in which he explains his position that bankruptcy is “not a practical or desirable” way to cut pension benefits.

From the column:

Imagine for a moment that you have run into deep financial trouble and have decided to file for bankruptcy protection. Your credit rating plummets, your home is sold at a fire sale, and you can’t rent an apartment or buy a car. You spend long hours at the negotiating table as creditors pick over the remains of your finances. Ultimately, you place your future in the hands of a total stranger, the bankruptcy judge.

Isn’t that a scenario that you would try to avoid at all costs?

If the consequences for an individual facing bankruptcy are devastating, the consequences for a municipality are 10 times as dangerous. Bankrupt cities face soaring crime rates, shrinking property sales, and the reduction or elimination of basic public services. It’s is not a decision that an elected official or city manager would willingly make unless there were no other options, as the decision by a bankruptcy judge presiding over Stockton’s bankruptcy makes clear.

Judge Christopher Klein’s ruling Thursday to approve Stockton’s bankruptcy plan confirms that the situation in Stockton will have little impact over the larger national debate on public pensions. Municipalities will not be filing for bankruptcy in waves in efforts to jettison pension debt.

For the very few severely distressed cities that may consider bankruptcy, the question will not be whether they can reduce pensions, but whether they should. In Stockton, the answer to that question was clear to all with a stake in Stockton’s future – and after two years of litigation that cost tens of millions of taxpayer dollars, the bankruptcy judge agreed.

Another key excerpt from the column:

Despite the media attention to cities such as Stockton and Detroit, municipal bankruptcy is exceedingly rare. According to one analysis, 13 local governments had bankruptcy filings since 2008. Five of those have been dismissed. To put it in context, there are more than 39,000 local governments in the U.S.

Although the bankruptcy process threatened to rob Stockton of its ability to make the best decisions for its residents, ultimately the judge accepted the city’s decision. In Stockton, the practicalities of running a city with an eye toward a brighter future shaped this outcome. Judge Klein acknowledged the serious and considerable pre-bankruptcy concessions accepted by Stockton’s employees, and the virtual guarantee that employees would leave to work elsewhere if Stockton reduced their compensation any further.

Stockton faced a unique set of circumstances brought on by revenue losses and a crippling national recession. Thankfully, it’s a situation that the overwhelming majority of municipalities will never have to face. As much as pension opponents would like to focus their analyses of Stockton as a blow to pension security, bankruptcy is simply not a practical or desirable option for cities dealing with pension obligations.

Read the whole piece here.

Photo by TaxRebate.org.uk

Pennsylvania Lawmaker Speaks Out Against “Irresponsible” Reform Efforts

Pennsylvania Gov. Tom Corbett spent most of his summer traveling the state and touting the need for pension reform. The legislators are now back from their breaks, but pension reform bills continue to gather dust.

Republicans have been vocal about Democrat lawmakers’ unwillingness to work with the reform bills currently on the table. Now, one Democratic lawmaker has clarified why her party refuses to engage with the Republicans. Rep. Michelle F. Brownlee (D) writes in the Patriot News:

Republican leaders have already acknowledged the real pension problem is debt, not benefit costs. The solution to pension debt is the same as the solution to credit card debt: Pay the bills. Yet the Corbett/Republican pension proposal focuses on cutting benefits for future workers.

Act 120 of 2010 already cut new worker benefits starting in 2011 by nearly 50 percent, saving Pennsylvania $34 billion. Further cuts will sacrifice the retirement security of tens of thousands of future teachers, nurses, first responders, counselors and other public workers. The strain on safety net programs would stress future state budgets. Why do that when the Corbett plan offered by the Republicans, by their own admission, will do nothing to pay down the pension debt any faster?

If “reformers” truly believe we need to pay down the unfunded liability more quickly than Act 120 does, then they need to offer additional revenue so the state and school districts can do that.

It’s irresponsible, and a huge disservice to Pennsylvania, for those who do or should know better to continue misstating the pension problem and misleading the public about the solution.

She was responding to an editorial lambasting both parties, written last week by Dwight D. Weidman, vice-chairman of the Franklin County Republican party. He wrote in the Patriot News:

A very wise Pennsylvania politician recently opined, “In Pennsylvania, the unions buy Democrats, and rent Republicans”.

No doubt what the author of this statement was thinking about when he made it was the fact that close to twenty Republican legislators have steadfastly opposed any attempt to help enact urgently-needed reform to Pennsylvania’s public employee pension system, because of their ties to public sector unions.

To be sure, not a single Democrat legislator is willing to step up and save the state from certain bankruptcy, but that shouldn’t really matter, since the Republicans control both the Senate and the House and could fix our pension debt crisis, but won’t, and that is disturbing.

[…]

If lawmakers fail to act, this issue will, in time turn Pennsylvania into a large-scale version of Detroit, with both businesses and population fleeing ever more burdensome taxes that will be needed to fund the growing pension obligations.

Weidman criticized the 16 Republican assemblymen who “won’t get on board” with pension reform efforts. Many of those lawmakers receive campaign support from various unions.

Pennsylvania Lawmaker Proposes Trash Tax to Ease Pension Pains

Pennsylvania Governor Tom Corbett has made pension reform a major part of his re-election platform, but has had little luck finding lawmakers to help him push through proposals.

One lawmaker put a new idea in the ring Thursday, although it’s probably not what Corbett had in mind.

Reported by the Morning Call:

State Rep. David Milliard thinks there may be pension gold buried in the state’s landfills.

On Thursday, the Republican from Columbia County floated a bill that would impose an additional $3 tipping fee on waste haulers to reduce school districts’ rising pension costs.

The additional fee would generate an additional $51 million and be put into a new pension-only fund controlled by the state Treasury, according to a memorandum Milliard published seeking co-sponsors to his bill. The Additional Commonwealth Contributions to School Districts Account.” to be used to help districts lower pension costs. The money would be distributed to districts, but not charter schools, on a prorated basis.

The proposal is meant to ease pension costs for school districts, which are subject to rising contribution rates designed to help cover the state’s pension funding shortfall. From the Morning Call:

Mandatory pension payments for school districts rose about 4.5 percent to 21.4 percent of payroll this fiscal year. The rising rates are based on Act 120, which went into effect in 2011. The law sets a increasing, fixed rates the state and school districts must pay each year to cover back pension debt, which is now approaching $50 billion. The state and school districts are having trouble keeping up with those payments even though they are lower than they would be if the law were not in effect.

So far, no other lawmakers have sponsored the bill.

VIDEO: Pennsylvania Lawmaker Pushes For Hybrid Pension Plan

Republican Rep. Mike Tobash has taken to YouTube to promote his plan for a hybrid pension system in Pennsylvania.

The plan was introduced July 2 as House Bill 1353.

The group Pennsylvania Needs Pension Reform, which supports the plan and also hosts the above video on its YouTube account, provided a summary of the benefits on its website:

What the Plan Does
1. Shifts risk.
Under this plan, the future pension investment risk facing the state, school districts, and taxpayers will shift to members of the retirement plans as hybrid tier participation grows. The Commonwealth and its taxpayers would be more sheltered from risk, irrespective of market performance.
2. Delivers competitive benefits.
This plan provides new employees with retirement benefits that are every bit as competitive and desirable as those they would receive in the private sector.
3. Protects earned benefits.
The plan proactively works to protect the benefits that hard-working Pennsylvanians have already earned. Under this plan, no current employee or retiree would see any changes to his or her plan.
4. Demonstrates responsible spending.
This is the fiscally responsible thing to do; not a “quick fix” like we have seen in the past. We would be making a fundamental change to ensure we can responsibly meet our statutory obligation to the retirement systems moving forward.
5. Stops the bleeding.
The projected debt associated with our current pension systems is expected to be eliminated by fiscal year 2044 as we meet our annual payment obligations. We can eliminate the unfunded liability years sooner by putting savings back into the systems.
6. Safeguards Pennsylvania’s credit rating.
The Commonwealth’s credit rating has already suffered from the pension crisis. Our approach protects taxpayer money by helping to avoid inflated interest rates on our credit.

Deprecated: Function get_magic_quotes_gpc() is deprecated in /home/mhuddelson/public_html/pension360.org/wp-includes/formatting.php on line 3712