The Dems are probably the biggest perps, but this is one conspiracy where both political parties walked hand-in-hand: overly generous retirement benefits for state and local public servants. The Dems did it to placate the big government unions clamoring for benefits… in exchange for both massive campaign contributions and public relations help/endorsements for legislators who played ball. The GOP? Most in the law-and-order craze and general support for the uniformed services, filled with retired soldiers, and focused on government workers who put themselves in harm’s way for the rest of us (basically cops and fire fighters).
But that was a better time, when ordinary people were making a living with a greater disposable income (in inflation-corrected dollars), before the federal government created massive pay cuts for the rich, severely limiting the deductibility of state and local taxes needed to pay for all those chi chi retirement benefits. It was easier to share the wealth; city councils, county supervisors and state legislators could stand side-by-side with cops and fire fighters in uniform and brag how well these folks were treated. But now it’s time to pay out those benefits. The bills are terrifying.
Chicago is constantly hovering near formal Chapter 9 municipal bankruptcy with its civil servant pension burden, and the Illinois State government has had to intervene. And while Governor Jerry Brown has taken California from deficit to small surplus, those looming pension benefits… at the local municipal level… are creating a rather terrifying near- and long-term crisis. Most of those local retirement commitments are either only partially funded or not funded at all. Monies have to come from the general operating funds negatively impacting city services.
Here’s what it looks like in the overall analysis in California, which I think is pretty typical in states with big cities: “Citing limited options for raising local taxes, the association representing hundreds of California cities warned that rising public employee pension costs might mean fewer services and longer emergency response times over the next several years.
“‘These pressures are not only mounting, but will force cities to make very tough choices in the next seven years and beyond,’ said Carolyn Coleman, executive director of the League of California Cities…The organization last week released a new analysis showing that 16% of the general fund budget in an average large city will go toward pension payments in just seven years’ time — close to double the percentage paid for those retirement stipends as of mid-2007.
“Most cities have pension benefits managed by the California Public Employees’ Retirement System, or CalPERS. Returns on CalPERS’ $346-billion portfolio haven’t met long-term expectations over recent years. As of the summer of 2016, the system was projected to have assets to cover only 68% of its future obligations… The association found in a survey that most of the communities with police and fire employees expect to soon pay 54 cents in pensions for every dollar in salary. In some cities, those payments are expected to rise to 76 cents per dollar of salary.” Los Angeles Times, February 5th. And if you drill down to see where that underfunding mostly comes from, it is, as suggested, police and fire disability pensions and early retirement with some of the highest levels of retirement in the entire country.
In the private sector, corporate pensions have migrated steadily away from defined benefit plans – where you get a monthly payment based on a percentage of some function of your last years’ salary, usually adjusted for inflation – towards defined contribution plans – where a fixed amount is set aside every working year, and you just get the appreciated total when you retire. But most of the government plans call for defined benefit, and for police and fire, they can often retire with 90% of benefits after as few as 20 years of service, and earlier if there is even an injury… often an injury that does not really impair their going-forward earning ability.
Nothing brings that home like the police and fire retirement/disability structure of police and fire pensions in Los Angeles, passed under a Republican mayor and pretty common all over the US. This anomaly allows these uniformed services workers to retire early… but keep working… effectively double-dipping, generating some astounding payouts of city money that makes me both cringe and be jealous. The February 5th Los Angeles Times provides this example (one of many): “When Capt. Tia Morris turned 50, after about three decades in the Los Angeles Police Department, she became eligible to retire with nearly 90% of her salary.
“But like many cops and firefighters in her position, the decision to keep working was a financial no-brainer, thanks to a program that allowed her to nearly double her pay by keeping her salary while also collecting her pension.
“A month after Morris entered the program, her husband, a detective, joined too. Their combined income for four years in the Deferred Retirement Option Plan was just shy of $2 million, city payroll records show.
“But the city didn’t benefit much from the Morrises’ experience: They both filed claims for carpal tunnel syndrome and other cumulative ailments about halfway through the program. She spent nearly two years on disability and sick leave; he missed more than two years, according to a Times analysis of city payroll data.
“The couple spent at least some of their paid time off recovering at their condo in Cabo San Lucas and starting a family theater production company with their daughter, according to Tia Morris’ Facebook posts and her self-published autobiography. They declined to comment for this story.
“The Morrises are far from alone. In fact, they’re among hundreds of Los Angeles police and firefighters who have turned the DROP program — which has doled out more than $1.6 billion in extra pension payments since its inception in 2002 — into an extended leave at nearly twice the pay, a Times investigation has found.” When those pension plans were proposed, they made great political publicity. But did those city councils run the numbers? I suspect they are particularly shocked at what has happened.
“City officials say they have never studied the amount of disability and sick time taken by DROP participants, but a Times review of thousands of pages of workers’ compensation files and tens of millions of computerized payroll and pension records from July 2008 to July 2017 found:
“Police and firefighters in the DROP program were nearly twice as likely to miss work for injuries, illness or paid leave.
“Those taking disability leave while in DROP missed a combined 2.4 million hours of work for leaves and sick time and were paid more than $220 million for the time off.
“More than a third (36%) of police officers who entered the program went out on injury leave. At the fire department, it was 70%.
“The average time off for those who took injury leaves was nearly 10 months. At least 370 missed more than a year.
“In addition to the salary and pension payments, leaves taken by DROP participants create a third cost for taxpayers: The Fire Department pays overtime to fill their shifts; the Police Department requires other officers to cover their work.
“The idea of allowing retirement-age public employees to collect their pensions while working and receiving paychecks originated more than three decades ago in tiny East Baton Rouge, La.
“But it wasn’t envisioned as a program to retain experienced employees, said Jeffrey Yates, the city’s retirement administrator. In fact, the goal was the opposite: to discourage older employees from staying so long that they limited upward mobility for younger workers. And it had a two-year time limit.” LA Times.
The Los Angeles City Council reacted: “Five Los Angeles City Council members have called for an investigation and reform of a program that pays aging cops and firefighters almost double at the end of their careers while allowing them to take lengthy injury leaves, costing taxpayers hundreds of millions of dollars.
“The council members are responding to [the] Los Angeles Times investigation… which showed that nearly half of the participants in the city’s Deferred Retirement Option Plan — better known as DROP — had taken such leaves in the last decade, for injuries ranging from cumulative ailments like carpal tunnel syndrome and high blood pressure to a fall from a defective office chair… In a motion filed Wednesday, Councilman Mitch Englander referred to The Times’ investigation, which he said presented ‘several egregious examples of abuse, and likely fraud.’
“The motion, seconded by four of Englander’s colleagues, called it ‘critical that [the] City investigate these allegations and take steps to prevent abuses in order to protect both taxpayer funds and the integrity of the program.’” LA Times, February 10th. This is a whole lot more than investigating a couple of examples of abuse. The whole system is unsustainable. Is the council up to it? How about all those other American cities with comparable problems?
We obviously cannot afford this giveaway. But even where a city declares Chapter 9 bankruptcy, the trustees generally try and honor those over-generous pensions while cutting active city services and raising taxes and fees on everything else. It’s time for reason to re-enter the building and “get real” with the public’s money. Not that there are any indications that anyone, most particularly not in let’s-incur-a-big-deficit-to-give-corporations-a-big-tax-cut Washington, D.C.... but then, only the feds can just print money (technically increase M1 money supply). The states and cities? Borrow, cut services and suffer. Oh, did anyone notice how far the stock market has dropped? Trickle-down economics anyone? I hear a piper piping! Time to pay him!
I’m Peter Dekom, and this combination of irresponsible governance and a very uncertain economic future for us all could provide some of the worst unintended consequences for our quality of life.
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1 comment:
You got it Petey!
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