Why Was Alvin Brown's Pension Reform a Bad Deal?

[theduvalprogressive]

I'm not saying all privatization is bad. There are some decent companies out there I'm sure that understand government is not a business; it is a non-profit commons. The mismanagement of infrastructure upgrade programs in Birmingham, Alabama by private contractors and then JP Morgan and Goldman Sach coming in via bribes and extortion and further compounding their situation made things worse.

http://www.policymic.com/articles/46543/jefferson-county-alabama-bankruptcy-county-s-decade-of-bribery-and-bankruptcy-comes-to-a-close

Privatization and "Public Private Partnerships" almost invariably lead to corruption and value loss to taxpayers as not-for -profit government enters into agreements where they guarantee their profitability with taxpayer funds.

http://www.inthepublicinterest.org/node/457

Here is another example of privatization that has led to outsourcing to other countries and abuses of food stamp programs in 24 states. And, who pays - guess who...

http://rooseveltinstitute.org/new-roosevelt/food-stamps-jpmorgan-banking-industry-profit-misery
http://www.alternet.org/newsandviews/article/446636/jp_morgan_makes_big_bucks_from_food_stamp_growth,_then_hires_workers_in_india_with_our_tax_dollars

Those sources are a little bit of information I pulled when I was engage with other groups in the city to pressure the council not to approve a QTI for expansion of JP Morgan in the city two years ago. There is a wealth of information on them alone that justifies that privatization is not always a good thing.

Not to mean disrespect to those who brought up this city in Georgia by I have yet to find any statistics that prove that the community has found any real value. Assuming they have only been a couple of years into it I would say its a little premature to trumpet it an either a success or failure.

[theduvalprogressive]

http://www.huffingtonpost.com/2012/02/29/401k-failing-boomer-generation_n_1311096.html

The idea of 401k are that they are to supplement social security and, hopefully, other retirement savings. However many are beginning to feel that going back to traditional, single payer pension plans are a less expensive idea.

[theduvalprogressive]

As have a few City Councilmembers.  The numbers are apparently magical.  They change, they shift, they misconstrue in on themselves.  An actual public presentation of the math would be pretty good for everyone concerned I think. - Stephen Dare

^^^^^^^ A very true statement^^^^^^^

[SunKing]

As have a few City Councilmembers.  The numbers are apparently magical.  They change, they shift, they misconstrue in on themselves.  An actual public presentation of the math would be pretty good for everyone concerned I think. - Stephen Dare

^^^^^^^ A very true statement^^^^^^^

That's why I ask.  And that's why they are a bad idea.

[JFman00]

As have a few City Councilmembers.  The numbers are apparently magical.  They change, they shift, they misconstrue in on themselves.  An actual public presentation of the math would be pretty good for everyone concerned I think. - Stephen Dare

^^^^^^^ A very true statement^^^^^^^

That's why I ask.  And that's why they are a bad idea.

you dont have enough information from a public fund to adequately judge a claim and you think its a better idea for a private firm to manage it because you would have better access to more information that way?

If you don't actually know any of the numbers, then this is really a discussion about your philosophy of government isnt it?  Just not based on any concrete examples or hard facts or figures?

I think its more likely that 'privatization' usually ends up a lot like the recent debacle of privately managing publicly owned parking garages, personally.

But at least we all agree that having the actual numbers would be a good starting point.

Does anyone with an opinion on how the Police and Firemen's Pension Fund is 'unsustainable' actually have the facts and figures to back up the claim?

http://www.metrojacksonville.com/forum/index.php/topic,19131.msg339148.html#msg339148

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.

http://www.metrojacksonville.com/forum/index.php/topic,19131.msg339162.html#msg339162

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

[JFman00]

Fine. Disregarding the unfunded liability (by definition the gap between promised future benefits and current assets and contributions), per city budgets Jacksonville was paying 10 mil a year towards pensions in 1997, 75 million in 2007 and 150 million last year with the contributions expected (by everyone except you) to continue increasing for the forseeable future. That looks like a pretty unsustainable trend to me.

Frankly the onus is on you to prove the naysayers wrong. You ask for numbers,  don't like the ones you get yet don't provide any of your own.

[JFman00]

The paper doesn't explain that because it's pensions 101. Here's an AARP article explaining it.

The underfunding means catch up funding in the future as payments come due which is why we're seeing the increase. The bigger the gap between what the pension fund was supposed to bring in and what's required to be paid, the more the city is on the hook for. The unfunded liability gets worse every year both because of the underfunding in the past and the overly rosy discount rate used.

[JFman00]

So yes, blossoming is a good word to use to describe the issue and Jacksonville's situation is really not all that different from other DB plans. I'd absolutely love to see numbers that show me wrong.

Just look at the city budget and you can reach the same conclusions they do. Non-partisan think tanks across the country are sounding the alarm on this and you don't have to look far to find labor that have been hurt because of precisely this issue. Again even if the JCCIs numbers are skewed, they'd have to be criminally wrong for the problem to go away. Please, prove them wrong. They've done a lot more legwork than you've shown so far.


You are literally describing the problem. The city didn't pay before, now they have to pay more, where does the additional money come from. Saying "the city is legally obligated to pay" doesn't answer where the money to pay comes from. The fact that you think that "unfunded liability"  is some arbitrary made up term and your similar lack of familiarity with basic economic terms and concepts makes me doubt YOUR level of knowledge. I've tried to be very patient and explain things as concisely as possible but am clearly getting frustrated at what seems to be purposeful obtuseness.

[JFman00]

If you owe 10,000 on a credit card and only make minimum payments, the debt compounds. The minimum payment increases correspondingly. Your example doesn't work without the amount owed and the interest rate. In the case of Jax pensions JCCI has done the actuarial computations to determine total debt, while the payments made can be seen in the city budget, along with the discount rate.

[JFman00]

Depends on the ratio of debt to income and when, if ever you plan to pay off the debt. If you're not actually paying it off faster than it compounds and don't plan to, yes, it's unsustainable. The death spiral starts when you start taking out debt to service (not pay off) existing debt. From what I've seen Jax isn't in the death spiral yet, but the public safety pensions are unsustainable. Cook County's (Chicago) credit rating was recently downgraded because of this (mainstream) way of thinking. The joy of that is that borrowing becomes more expensive which exacerbates the problem.

[JFman00]

You can go into bankruptcy and negotiate a debt settlement that will involve either cancelling your obligations or restructuring them to reduce how much you owe, the monthly payment/term and/or the interest rate. Also your creditors have the right to seize whatever assets you're holding relative to how much you owe. If the judge agrees that you have to pay 1000/mo for the car but you only make that much, you have no choice but to pay all your income towards that debt. Additionally since you're in bankruptcy your chances of securing credit to keep you afloat until the debt is repaid are zero.

[JFman00]

Probably a lot less of it.

[JFman00]

Its in the best interest of the ccreditos to agree to debt repayment commensurate with the ability to repay. Otherwise obligation or not, there is literally no means to pay the debt.

[JFman00]

You have to be kidding.http://mobile.reuters.com/article/idUSTRE81718S20120208?irpc=932
The airline, a unit of AMR Corp, proposes to terminate its four underfunded pension plans as part of its bankruptcy proceedings, replacing them with a 401(k) offering. The pension plans' assets and liabilities would be transferred to the Pension Benefit Guarantee Corp (PBGC), the government-sponsored agency that insures most private sector defined benefit pensions.

The plans, which cover pilots, flight attendants, agents and ground crews, have an estimated total of $8.3 billion in assets and $18.5 billion in liabilities. American told employees this week it expects 90 percent of its workers to receive full benefits.


That's a reduction in debt. And that's a corporation that had an existing entity onto which it could offload its debt. Even then, there will be fewer benefits paid than originally promised. I have been on my phone this entire time but I challenge YOU to show me I'm wrong. You've literally brought 0 numbers, from any source, to the table.

[JayBird]

You have to be kidding.http://mobile.reuters.com/article/idUSTRE81718S20120208?irpc=932
The airline, a unit of AMR Corp, proposes to terminate its four underfunded pension plans as part of its bankruptcy proceedings, replacing them with a 401(k) offering. The pension plans' assets and liabilities would be transferred to the Pension Benefit Guarantee Corp (PBGC), the government-sponsored agency that insures most private sector defined benefit pensions.

The plans, which cover pilots, flight attendants, agents and ground crews, have an estimated total of $8.3 billion in assets and $18.5 billion in liabilities. American told employees this week it expects 90 percent of its workers to receive full benefits.


That's a reduction in debt. And that's a corporation that had an existing entity onto which it could offload its debt. Even then, there will be fewer benefits paid than originally promised. I have been on my phone this entire time but I challenge YOU to show me I'm wrong. You've literally brought 0 numbers, from any source, to the table.

Keep in mind that a municipality claiming bankruptcy is not the same, nor is it treated the same as a corporation filing. The tax law has different chapters for a reason. It would seem JFMan that you are in favor of COJ exercising such opportunity if Detroit proves successful, which is very dangerous. That means one term be used to buy buy buy, and the following term can be use to file file file. A horrible pattern.

If that is your belief, you are not alone, but it is a dangerous slippery slope to get caught on.

http://www.jdsupra.com/legalnews/detroits-unprecedented-bankruptcy-filin-64204/

Municipal bankruptcy filings are rare. While there were more than 1.2 million bankruptcies filed in 2012, only 276 municipal bankruptcies were filed between 1980 and 2012 – about eight a year. Nevertheless, the number of municipal filings is increasing. Thirty-six municipal cases have been filed since January 2010. Detroit is easily the largest municipality to file bankruptcy. With a population of more than 700,000, Detroit is twice the size of the next most populous municipal debtor, which was Stockton, California. Likewise, Detroit's debt of more than $18 billion is by far the largest of all municipal bankruptcies.


Pensioners will be watching the Detroit case closely as well. Orr estimates that Detroit's pension liabilities are underfunded by $3.5 billion. Underfunded pensions are a widespread problem for municipalities across the nation. In 2010, economists at the Kellogg School of Management at Northwestern University estimated that the nation's municipalities have underfunded pension liabilities of approximately $574 billion. If through its bankruptcy Detroit is permitted to modify its pension liabilities, bankruptcy may become more enticing to other municipalities with underfunded pension debt.

I have to agree with Stephen, until the absolute math is made available, any discussion can only be based on the principal of what should be done in normal situations and speculation about the numbers.