American cities and states must promise less or face disaster

[JFman00]

A sobering look at how much wider and deeper the pension problem goes in America. Lesson for Jacksonville? It's only going to get worse.

America's public finances: It's not just Detroit.

But the truth is that America's whole public sector still operates in a financial never-never land. Uncle Sam offers an array of "entitlements" that there is no real plan to pay for. Barack Obama is on his way to joining George W. Bush as a president who did nothing about that, while Republicans in Congress imagine they can balance the books without raising taxes. The government spends more on health care than many rich countries and still does not cover everyone. America's dynamic private sector is carrying on its back an unreformed Leviathan. Detroit is merely a symptom of that.

[Garden guy]

And every investor shouldnt expect so much ither...corporate america has been fucking the people that do the real work for many years

[kells904]

To anyone willing to address this:

Is it, or is it not within the realm of human possibility, that a colossal shift takes place toward reversing the flow of both government and capitalism? I don't know if I'm wording that right, but this is what I mean: I think people expect too much of their lives to be taken care of by someone else (like, the federal government for example).  Well-meaning concepts all seem get out of hand once there's a high number of people affected by that concept.  Like...this pension problem, or...how people seem to hate Bank of America...

It makes more sense to me that most of the things that would affect my life, be handled at a much more immediate level, because I can see how some policy affects me and the people around me, not me AND the people in Iowa.  Just seems like bureaucracy and grand ideas have perverted common issues into unnecessarily epic political struggles because there's just too many people affected by whatever course of action is taken.

I get the logic behind pension programs, but at the same time, once upon a time, it was incumbent on each of us to save a little and take care of our own retirement.  And I expect the response to that statement to be something like 'that's not so easy to do anymore because of reasons x, y, and z,' and I won't argue against that.  But in my mind it all interconnects with what I said at the beginning about letting the few handle so many of the affairs of the many.  The chickens are coming home to roost now, because you're basically trusting other people to look out for you, and they're unsurprisingly screwing it up.  I believe that any entity/concept can become too big, and poor results should be considered an inevitablility.

Thoughts?  Agree/Disagree?  Or is this all ridiculous??

[JFman00]

The issue at hand that I feel the Economist is trying to illustrate is that the usual defined benefits government pension system is unsustainable. Whether the pensions are overly generous or not generous enough, they are simply unaffordable at current levels given how much Americans have historically willing to contribute. The options are few:

• cut future compensation to the bone to pay for existing promises
• reduce current *and* future obligations
• dramatically raise taxes

If in the past pension funds and elected officials had been more conservative in their projections and promises, we probably wouldn't be having this conversation. What's done is done, however, and the question is what do we do moving forward? The rate of underfunding, year after year, plus the overly optimistic assumed growth rates have put us in an awful situation. Complain about unions or big business all you want, it won't change the accounting reality. Or take the Krugman route, propose no change, and say "these things just happen".

[kells904]

^From what you've said, I'd lean toward both #1 and #2.

Rip the band-aid off and don't listen to political promises.

[NotNow]

Just a few things on the local situation with "pensions".

The Police & Fire Pension Fund has been "sustainable" since early in the twentieth century.  Only after the COJ politicians decided to spend all of the pension reserves in the 1990's, and then when faced with a serious economic turndown in the mid 2000's did the COJ politicians decide that the Police & Fire Pension was "unsustainable".  Now those same politicians propose to make the public safety pensions in JAX the worst (by far) in the state.  That will result in a less professional and less capable first response in the near future resulting in increased financial payouts for mistakes made by first responders who are new to the job and are busy looking for a job in a city or county that provides a competitive compensation package.  The same factors could, and probably will, cost lives...which the taxpayers will be responsible for financially.  Replacing those quickly leaving first responders will also be expensive.   

Ever wonder why the Police & Fire Pension is the only city pension system being reduced?  Why don't the Mayor and City Council lead by example?  Because they can't.  They are in the Florida Retirement System.  Back in those same 1990's, they voted millions of dollars of your tax money to buy their way into FRS and OUT of the city retirement system.  They spent those millions to insulate themselves from city pensions in the same years that they were robbing the Police & Fire reserves.  Hmm, wonder why cops and firemen are a little bitter about that?  Have you heard about any other city pension system being cut?  Me either.  For the record, I don't think other city employees should have their pensions cut either.

And Kells, i don't disagree with you.  We should prepare for ourselves.   We should all be prepared.  I'm just pointing out who kept their promises...and who didn't.  And how the taxpayer is going to pay either way.

[Dog Walker]

+2000  Thank you for a very lucid explanation of the pension "crisis"!

We are grossly under taxed by our governments and grossly over "taxed" by our corporations, especially the health insurance and oil companies and financial institutions.  These bloated companies have captured the regulators and our legislators at all levels.

Pensions, Social Security and Medicare are not a problem if you fund them as designed.  Cutting taxes has not stimulated growth in the past thirty years and will not in the next thirty years.  The extra money just get sequestered by the 1%.  The "trickle-down" theory of economics is BS.

[FSBA]

Pensions, Social Security and Medicare are not a problem if you fund them as designed. 

Charles Ponzi said the same thing to his investors

[JFman00]

City Council Finance chair was on First Coast Connect this morning. Talked briefly about the "bad choices"  made in the past (a caller singled out the Peyton and Delaney administrations) but said essentially what's done is done and we need to start having serious discussions how to deal with the issue (150 million on an almost 1 billion dollar budget to pensions with the cost projected to continuing increasing as a share of the budget) and move forward.

Take a look at the JCCI letter to see how big the hole is and how quickly it is growing, and once you start running numbers, solving the underfunding by increasing tax revenue alone is entirely unrealistic (how would you propose covering 1.3-1.8 billion in underfunding that grows 7% each year). I guess a fourth option I didn't mention was eliminating increasingly large chunks of the budget to pay for pension cost increases.

[Bridges]

I get the logic behind pension programs, but at the same time, once upon a time, it was incumbent on each of us to save a little and take care of our own retirement. 

When was that?

[Dog Walker]

I get the logic behind pension programs, but at the same time, once upon a time, it was incumbent on each of us to save a little and take care of our own retirement. 

When was that?

ever.  in the history of the world?

When people died young and their children took care of them in the cave.

[JayBird]

I get the logic behind pension programs, but at the same time, once upon a time, it was incumbent on each of us to save a little and take care of our own retirement. 

When was that?

ever.  in the history of the world?

When people died young and their children took care of them in the cave.

Before the Great Depression I believe the only retirement funds were through railroad companies for their employees. Across the board coverage didn't come until the 1939 ammendment to the Social Security Act so in essence the common worker up until 1936 (because the amendments were retroactive to then) had to put aside a little something if they expected to quit working before death. However most didn't, you grew old stopped working and children worked and took care of you.

[JayBird]

An interesting fact, even though the social security fund was self sustaining, in 1937 they set the age you could collect at 65.  Today, when we live much longer on average it has only moved to 67. Even if the politicians had not robbed Peter to pay Paul it still would probably be in a like situation of finding funds.

[JayBird]

I get the logic behind pension programs, but at the same time, once upon a time, it was incumbent on each of us to save a little and take care of our own retirement. 

When was that?

ever.  in the history of the world?

When people died young and their children took care of them in the cave.

Before the Great Depression I believe the only retirement funds were through railroad companies for their employees. Across the board coverage didn't come until the 1939 ammendment to the Social Security Act so in essence the common worker up until 1936 (because the amendments were retroactive to then) had to put aside a little something if they expected to quit working before death. However most didn't, you grew old stopped working and children worked and took care of you.

and mostly you died working.  in a poor house (which has been suggested as a plausible alternative by a couple of still healthy individuals on these forums).

And mostly we died of hardships before our natural lifespans could complete.

Very true. If you live to retirement age and move into these retirement "places" you'll die of a heart attack once you get the bill. My mother works at the Allegro in Fleming Island and when she said how much they charge each month, yikes after they reform medical care they need to reform assisted living costs! And with social security probably disappearing within the next decade, well that is certainly a socioeconomic conundrum in the making.

[JFman00]

City Council Finance chair was on First Coast Connect this morning. Talked briefly about the "bad choices"  made in the past (a caller singled out the Peyton and Delaney administrations) but said essentially what's done is done and we need to start having serious discussions how to deal with the issue (150 million on an almost 1 billion dollar budget to pensions with the cost projected to continuing increasing as a share of the budget) and move forward.

Take a look at the JCCI letter to see how big the hole is and how quickly it is growing, and once you start running numbers, solving the underfunding by increasing tax revenue alone is entirely unrealistic (how would you propose covering 1.3-1.8 billion in underfunding that grows 7% each year). I guess a fourth option I didn't mention was eliminating increasingly large chunks of the budget to pay for pension cost increases.

covering the underfunded part of 1.3 billion dollars in the course of a single year would be hard.  However, paying the difference back over the period of 10 years isnt as much.  a very small increase in sales tax would do it without a problem.  Lets not get too dramatic with how all of this money would have to be produced, in cash, tomorrow.

Note that given the current level of funding the liability grows by 7% each year. Even given the lower end of the JCCI estimate, that's 90+ million dollars increase a year. At 120 million (13% of the budget) for PFPP city contribution in the current year, we'd need to increase contributions by 75% just to keep even. Annualizing 1.3 billion over 10 years, 130 million a year. So to reach full funding entirely from city contributions, $340 million a year. On a general fund budget of a billion dollars, that's exactly as dramatic as it sounds. Please do correct me if I'm misunderstanding the situation but the numbers seem relatively straightforward.