Tuesday, August 20, 2013

Should we DOUBLE-SOLVE our Pension Probs?

There are two workable solutions.

It's possible that we ought to, need to, and only can do both.

Deal time?

A CNBC.com analysis shows that more than 120 of the country's biggest state and local pension plans contain a range of problems. “Thanks to a patchwork of accounting practices and rosy investment assumptions,” according to the report, it's unclear just how bad off they are.

But based on adjusted funding gaps, Pennsylvania and nine other states “would see their funding liabilities exceed an entire year's worth of state revenues,” according to the report. (Trib Editorial I)

The severity of these coming waves of pension crunches are not really in dispute, and these are certainly no strangers to the City of Pittsburgh.

The zombie invasion we fended off in 2010 is bound to return having worsened. And although we like to celebrate operating budget surpluses, better credit ratings, a "debt cliff" coming in 2017 2019 if (we can hold out) along with the ability to boost the capital budget some... we talk less about our pension burden because it's less scary and impossible.

And so...

Avoiding disaster in Pennsylvania begins by getting the Legislature off the dime and shifting new state employees and public school teachers from a defined-benefit to a defined-contribution plan — which should have been done years ago. (ibid)

Boy, this takes me back. Many conservatives cry "Tear up the contracts," but in the autumn of 2007, Mark DeSantis cried "Switch to defined contribution plans!" and it struck us as not grievously insensible.

It's a different economy than in the postwar boom, and has remained mean for a long while. The cost of health care in particular has become exceedingly prohibitive when not distributed. Do hold the line for retirees and workers under a contract, as if we have any ethical choice. But for new hires into the future? If we get clearance from the State? Who knows? It's worth thinking about.


The [Pittsburgh Post-Gazette] editorializes that Detroit's bankruptcy somehow is a clarion call for “a new urban agenda,” one that “can be a prescription for national prosperity.” But as the Allegheny Institute for Public Policy reminds, “Calling for a new urban agenda is just a dreamed up politically correct scheme to avoid dealing with disasters created by earlier statist schemes.” (Trib Takers)

What is their beef this time?

No one should expect a Marshall Plan for cities, but the federal government must become a stronger partner. States, too, must develop urban policy agendas to grow. Unfortunately, too many states have cut aid to local governments while pursuing a myopic development strategy that focuses largely on tax cuts.

Money for transit systems, regional economic development, public safety, housing, education, health care and job training are investments in solving not just the problems of cities, but also those of the nation. (P-G, Editorial Squad)

Yup. Easy to see how conservatives would recoil from that as though from sunshine. (And so, politics being the art of the possible, there is little danger of next Great Society breaking out any time soon.)


Peduto said the state's formula for giving cities state pension aid favors newer cities because it's based on the number of active employees, not retirees. Newer municipalities have fewer retirees, he said, but receive generous contributions. (Trib, Sidebar Bauder)

This suggestion is by no means new either to Bill or to the discussion table. But Pennsylvania's pension aid formula is so obviously slanted and out of whack, it can't do it's job providing a baseline of governmental stability.

You want to talk about "moral hazard": what about the city worker who votes her own pocketbook interest for 20-30 years, then retires with that pension and benefits package, but moves the family to the suburbs (as a great many did) thereafter contributing very little in taxes to support their new town's workers thanks to the slanted and inefficient State pension aid formula, flush with funds from metro area tax receipts? This isn't an ideological problem, it's math and logic.

More importantly, Comet readers: are we crazy or are there the makings of a deal here? Encourage defined contribution plans that moderately recognize increasing limitations in public budgets over the last 60 years.. and fix the state pension aid formula to recognize the immutable history of all older cities and our continuing stake in them, and other aspects of a rational "urban agenda".

These pension reckonings are so significant, we might need to "fix" them twice in order to actually fix them once, but good.


  1. So, moral-hazard-wise, do we require city pensioners to reside in the city as part of a rational urban agenda?

    1. No, that is more suited to a fascist urban agenda. I'm not wholly comfortable with anything conjuring Border Guard Bob.

      Somebody explain to me if this package might appeal to anybody growing more concerned about Philladelphia schools.

  2. Gosh O'Golly. Please take a look at your 3rd-from-bottom paragraph starting with "you want to talk about", my question, and the f-word.

    1. Sorry. I've been given to playing fast and loose with the word "fascist" lately. An inside joke almost. But I don't seriously think it's justifiable to detain people to a certain city for any reason during their short spans on this earth, unless they're under House Arrest or something.

      Perhaps we could "incentivize" retirees etc to stay. With amenities would be best, but special benefits such as tax deductions not out of the question.

  3. Well, that's cool.

    But if you feel that way about "indentured residence", then I don't get your 3rd-from-the-bottom paragraph. I'm letting go now, breathing in, breathing out, I'm a tree...

    1. Well it's a combination of a hypocrisy complaint and a reminder of how we really got here. A lot of forces were at play, not the least of which was flight due to a multitude of forces. You can't chalk it all up to politicians' irresponsibility, and even if we can, a lot of entirely new people have been born since then. And we've squeezed ourselves with state oversight since then. A modicum of trust is warranted.

    2. Another problem with that paragraph is that it argues that pensioners moving out of the city contribute very little to the taxes that support the city. Pensioners pay no taxes on retirement income to either the city or the state. This, in itself, should serve as a magnet for retirees to not only stay in the city; but, for retirees from other areas to move here.

      The only taxes being lost from the retiree moving away is the property tax; but, this will continue by the new owners of the property if it is sold.

      Sales taxes are impacted to a minimal degree simply because most shopping (even for retirees) is done at the malls where parking is free and you have the opportunity of shopping at a variety of stores at one stop.

      What taxes that have a major impact on the city and county operation is actually being impacted by the relocation of retirees?

    3. Those continue to be paid by the new owners of the property. Nothing lost there.

    4. The displacement of that income has to cause problems.

    5. It is not the loss of the few City retirees that have hurt the coffers of the City.

      The biggest thing that hurt the City's coffers was the dramatic loss of population following the collapse of the the steel industry. This was further exacerbated by the change of properties within the City from taxable to non-taxable when hospitals and universities started scarfing up so much property.

      The flip side of that coin is that Pittsburgh is one of the few towns that was able to reinvent itself and it's economy. This along with many of the projects scheduled to happen (downtown, Larimar, etc..) will serve as a magnet to rebuild our population. Downtown commercial and residential properties are full to overflowing. With increased investments in properties and a growing population, the City's coffers will begin to grow. We just have to hope that the growth of these coffers is managed wisely rather than exploited by different competing political sectors.

      Completely agree that regardless of what happens in terms of the City's future growth, the public pension system needs to be completely revamped. This will take a lot of work on the part of both local and state leaders.

      Completely disagree with you about any impact that the loss of retirees moving out of the City has on the coffers. It is small to non-existence. Better to focus efforts in other areas.

    6. Not among my strongest notions, it is clear. I just don't like the blame game some play when approaching muni pensions, that "they" caused / voted for "their" problems so "they" can fix it. Even to the extent we can attribute some of Pittsburgh's financial situation to "bad decisions," by politicians, over generations new people keep moving from the City to the suburbs, and from elsewhere to Pittsburgh, and being born. Let's do what needs done so we don't cripple the state as a whole.

  4. Note that the shift to defined contribution plans is really a non-solution to the underlying problem. Defined contribution plans are actually inherently less efficient at providing adequate retirement benefits because they lack the "insurance" built into defined benefit programs. What that means is that in order for each employee to get the same retirement security, employees in combination with their employer would have to be contributing more into the plan. This problem is often exacerbated by various fees further reducing the efficiency of defined contribution plans.

    But of course instead of contributing more, the employer/employee combination typically contributes less, often much less. This, of course, is often a specific goal of the employer. So, what you have achieved is some cost savings for the employer through a significant cut in retirement benefits, but for every dollar the employer saves there is actually more than a dollar of benefit loss due to the increased inefficiency of the program.

    Of course it is also a real problem that many specific employers have not adequately funded their defined benefit plans, and employer bankruptcy can be a problem, and so on. The ideal solution might be to have employers/employees pool together to fund retirement benefits, preserving the valuable insurance aspects and minimizing fees, while making adequate funding contributions mandatory among the pool participants.

    And in fact we have a good start on that sort of thing already--they are called Social Security and Medicare.