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Pensions & Fiscal Child Abuse
By JGillman, Section News
"Live now, pay later," might have easily supplanted the national motto of "E Pluribus Unum," instead of its supposed replacement, "In God we trust."
Aside from the obvious reference to unearned hedonism and individual irresponsibility, it should be noted that governments derived from such careless individuals as the "live now" crowd can bring all of us even closer to being debt slaves. Yet even without the notion of pleasure as an advance reward to leadership, the function of government runs unabated. One might find it differently in private enterprise however, according to Jack Spencer at Cap Con:
"In the private sector, businesses can't ignore economic reality by giving in to unrealistic union demands. They open their books and say, "look, we've had a lousy couple of years. We have to cut back or go under. We can't give you what you want." That reality check doesn't apply to government, which is always bargaining with other people's money. Those "other people" are us, the taxpayers. Over the decades, when faced with unpopular choices of cutting services or raising taxes, government officials have given unions most of what they asked for and left the tab to be picked up by future generations."
In a nutshell, that is it.
I've been there. In fact, I have been in both places simultaneously. At the business owned by my wife and I, folks haven't received raises in three years, yet as a county commissioner in 2012 I was present while union employees received automatic 1.5% increases. It made no sense to me that it should be so easy for a nearly unanimous Republican board to approve of such a thing, but over the years we have discovered that fiscal insanity is a scourge that has set upon both Capulet AND House Montague.
And it is generational too. So much so, that entire infrastructures are collapsing from the weight that has long had its supports removed. Pensions as a part of governmental financial negligence as referenced in the Cap Con piece above are responsible for cities literally falling apart, and legitimate public safety services being eliminated.
So what have we done to solve this?
Go below the fold to find out how we can actually make bad stuff, worse.
Last year, as a 'solution' for cash strapped municipalities wrestling with pension liabilities, and particularly as a solution for those who have not yet wholly funded the pensions promised to their employees, the state legislature passed SB 1129. The bill was designed to authorize local "pension obligation bonds" and give the municipalities yet another tool to work with in managing flagging revenue to expense ratios, particularly when affected by pension issues.
The plan was to help those suffering local units to ride the lean years of diminished revenues, and eliminate the emergency equity requirements of MERS; by allowing the local governments that have changed from defined benefit pensions to defined contribution pensions to literally borrow money to pay for money they already 'owe.'
In Grand Traverse County, the 46% funded employee pensions would become 100% funded if a board decision to bond the remainder was done instead of the decision to take money out of general fund reserves. The 'easy path' it seemed, would be to borrow the money, stabilize the cash flow situation, and pray like hell for revenue increases as well as a decent return in the retirement system.
Piece of cake, right? Maybe, but we'll get back that shortly.
First, a primer. Grand Traverse County is not alone in the region with such troubles. Traverse City itself faces a similar (tens of $Millions) situation; one that precipitated this presentation. Two years ago, City Commissioner (at the time) Michael Gillman provided a look at the developing pension crisis, while providing some historical perspective and layman's translations.
The first few minutes are a must for those who need to get up to speed on this issue.
If nothing else, one might take seriously his show ending admonition of "Fiscal Child Abuse" by a failure to recognize and act on the danger of 800 lb pension gorillas.
Fast forward to Grand Traverse County only a couple of weeks ago, where the county board wrestled with the possibility of bonding. As mentioned already, it seemed as though the 'easy path' offered by such a plan would be taken by a board unwilling to otherwise cut services. In fact, the 'fait accompli' as it was presented in the local paper drew attention from concerned 'detractors' and those who have financial interest in keeping certain county programs alive. (employees and their families)
One particular 'detractor' Chris Radu, noticed one of the headlines announcing the potential borrowing while paying for gas. Revealing [a lesson for another day] that if it had not been on the front page, its likely he may not have noticed the issue at all until the deal was done.
It was probably a good thing [for county taxpayers, that] he did.
Chris Radu makes his living as a financial analyst and adviser.
Mr Radu made it a point to do something he had apparently never done; speak to a local unit of government during budget discussions, and explain to them why pension obligation bonding might not be such a good idea. In fact, he made sure that the next several meetings of the board were blessed by his presence so he could properly educate members about the risk they were considering.
During that first budget meeting he attended, I advocated consolidation and even elimination of certain services, other folks were wailing against the potential disasters to our community if (Heaven forbid) we were to actually close the pool, or reduce parks programming. In the meantime, the rampaging elephant in the room and on the mind of commissioners was that they were facing a $1.5 million shortfall.
And interestingly, while bond counsel for the county was passing along the good reasons for 'managing' such a shortfall (curiously, never revealing that his daughter might be the bonding agent) Mr Radu tamed the beast; at least to the point where going to bonding was rejected as an unwise path. Without his input, the county would have engaged in further "Fiscal Child Abuse" as described previously. As it was, the chosen path was to spend down money reserves from the general fund. A move that has potential effect on future bonding costs; one that also revealed the inability to shed unnecessary expense until forced to do so.
Radu had a clear understanding of the retirement system, and many from one of our local groups recognized this; inviting him to speak on this issue at one of their meetings. See the video of his presentation below. (thanks to Dick Nottage of Dining Room Productions)
One of the attendees at this meeting was Michael Gillman who in a followup email to Radu, complemented him on the presentation and offered a few comments as well. He writes:"
Good Morning Chris, I enjoyed your presentation to the "912" group on Tuesday, and since I am probably snowed in for the day, thought I would provide some supplemental comments. You might get called upon by other organizations (I hope so!), and you might want to incorporate or consider some of the following.
We don't have to like the higher taxes part, but the reality is there; and its likely.
We can face the hard decisions now, or force our children to pay for them. The elder Gillman carries a particular view that debts should be paid as close to the generation that incurs them as possible. Kicking the can down the road is maybe not so good an idea.
Government 'rule' has been made too easy. Perhaps for too long the power enjoyed through management of such riches and power has not come with a certain Damocles threat that should rightly accompany it. For too long, the threatening sharp edge of insolvency has not hung over the heads of decision makers like it ought to have, making the "king's" seat perhaps a bit too comfortable.
An owner of a private business lives under the constant reality that poor money decisions will lead to fiscal pain and distress. The sword held by a horsehair thread ever present in the mind
However, our elected and appointed leaders don't carry enough personal responsibility for the long term outcome of their supposed benevolence. They have abused us, we have endured it, and now we have brought our children into this relationship.
Pensions & Fiscal Child Abuse | 3 comments (3 topical, 0 hidden)
Pensions & Fiscal Child Abuse | 3 comments (3 topical, 0 hidden)
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