Last year I documented the saga of the city of Central Falls, Rhode Island, which went into state receivership only to be “rescued” by a new state law which prohibited municipalities from using traditional court receiverships in favor of a new state takeover mechanism.
Central Falls became a model of what could go wrong when fiscal mismanagement mixed with burdensome union contracts pushed a government’s ability to service its obligations to the brink.
Any illusion that Central Falls could be rescued is dimming quickly, as the state receiver appointed to run Central Falls has just announced that bankruptcy is on the horizen, as reported by The Providence Journal:
With a legal fight still raging over the state’s attempts to rein in the cost of its retiree health and pension benefits, Central Falls receiver Robert Flanders is seeking “significant voluntary concessions” from retirees in the battered city he is trying to pull back from the brink of bankruptcy.
In a letter that went out Friday to retired members of the Central Falls police and fire departments, he requested a meeting on Tuesday, July 19, to discuss the potential for a cost-saving compromise that could help avert a bankruptcy that could jettison the city — and it retirees — into unchartered legal territory.
A big part of the city’s $4.9-million operating deficit is due to the $3.4 million in required pension contributions which Flanders has said the city can’t afford to make for the full budget year unless there are parallel spending cuts.
The lesson of Central Falls extends far beyond Rhode Island, as public sector pension obligations are choking municipal finances. As Steve Malanga writes:
Pensions are an enormous part of the problem. New Haven’s $475 million budget, for instance, is projected to grow by just $4 million this fiscal year, but the city’s pension and health-care costs will rise $12 million, forcing cuts elsewhere. In San Francisco, pensions consume about 14 percent of the budget, and rising retirement bills for city workers accounted for one-third of this year’s $306 million deficit. Pension and health benefits account for 20 percent of the $500 billion that the nation’s nearly 14,000 public school districts spend annually. In a recent National League of Cities survey, nearly 80 percent of municipal finance officers listed rising pension payments as one of their most significant budgetary problems.
We are seeing our future, and it is Central Falls.
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Comments
“new state takeover mechanism” eh? Anything is fair game to save those unions and their bennies, eh? I spent some time trying to come up with a better way to describe public-sector unions than ‘Parasites’, but I failed.
Shady accounting by union negotiators is also at fault for a lot of this. They base their portfolio performance expectations on absolute “best-case” stock market scenarios to present pie-in-the-sky benefit costs as “reasonable”. Any slightest drop in stock market performance and all these estimates collapse into thin air. Pension accountants are forced to dig deep into the “principle” to make up for shortfalls, there-by reducing any future gains when the market does eventually recover.
Insurance companies live by balance sheet portfolios also, but are forced by realities of the free market to live by more realistic estimates and assumptions.
The achilles heel to the union plans is their belief that there is money somewhere to save them. There isn’t. It’s time to shut down those black holes before we all get sucked in. As the stock market is telling us, there still is a solid base of industry to rebuild from. But not if the unions steal that capital too on their way to oblivion. Time to amputate that leg so the body can survive.
I certainly understand the point of unions to some degree, but they make absolutely no sense in the public sector or in minimum wage settings, yet these appear to be where they’re most popular. I just hope we can get over the “why are you attacking teachers and firemen” argument, as if any discussion of fair pay and benefits is an attack on those employees directly.
Let me change “amputate that let” to “remove that goiter”.
Let’s not forget how these pensions came into being in the first place. These absurd pension plans were brought about by labor delivering votes to Democrats who then turned on their constituents and worked diligently to draft these financially unsustainably pension agreements. Besides pointing out the financial difficulties that have come about today because of this widespread practice, we need to haul every single one of these pension agreements out in front of the public and see who sponsored them and who signed them.
The Democrats who did this en masse are now simply disappearing into the anonymity of the crowd as they thought they would be able to do when they were plying their trade. This all went on because the leaches thought they would never be exposed. They now need to be exposed. The only way to prevent them from getting away with their collusion and abandonment of the public trust, and to prevent this in the future, is to expose every last one of them. Someone needs to start an organization that will systematically expose every last politician (of either party) that engaged in this practice.
I need to challenge a bit of the ‘settled lore’ stated above that public employee pension plans were “absurd”. At conception they were necessary to attract sufficient numbers of skilled candidates to perform public service jobs in an acceptable manner. Think of walking into a DMV filled with workers who don’t care. We needed not just “bodies” filling those slots, – that type were a dime a dozen – but we wanted people who knew or could learn what to do, knew how to work, cared about their jobs and wanted to make a difference. Not your “typical” public employee.
I understand to some people this is a strange concept, but in my neck of the woods we changed the service culture of thousands of public employees to one where they endeavored to deliver outstanding customer service with the goal of “getting it right the first time”.
What was “absurd” about this accommodation, of course, was the lack of political will among Democrats and Republicans alike to modify and adjust those terms as employment and economic conditions evolved. But that same mind-set ran rampant in the housing and banking industries, too, so even though trouble could be seen coming down the road by some, it was too far away and conveniently ignored.
Those conditions were supported, of course, by the unions – which at the time were not all that powerful. Now things have changed even though unions remain in denial.