Need Some 'Splainin' (Pittsburgh: 2014, lease, insurance)

[shlewis]

Alright, I checked for a thread on this - and I was sooo surprised to not see the Pittsburgh Forum going on about this.

Math error sidetracks Pittsburgh pension bid

So, about the pension...

Can somebody succinctly explain why it'd be bad for the state to take over the pension? Lay off's and cut backs are overdue, don't you think?

[BrianTH]

A state "takeover" won't cause layoffs and cutbacks.

The state would only be taking over management of the fund. State law would continue to limit what the City can do to actually limit its pension costs--among the relevant provisions, state law mandates that the police and fire unions can take the City into binding arbitration, it gives them the right to early retirement, it punishes the City for trying to reduce the active force, it prevents them from voiding preexisting CBA obligations in Act 47/bankruptcy proceedings, and so on. Because of all these state laws, there really isn't anything the City can unilaterally do to dramatically lower its expected pension costs.

The negative consequences of the state managing the fund is that they would require a much larger contribution from the City in upcoming years. In order to find the money to pay those contributions, the City would have to cut services, increase taxes, and/or sell assets. If state law doesn't change, it will have to do those things anyway eventually. But preventing the takeover this year would at least buy some time for pension reform at the state level to become possible.

To sum up: the state "taking over" doesn't mean a reduction in the City's future pension obligations--that will take a reform of state pension law. It just means the City having to pay more over the next period of years to fund those obligations.

[shlewis]

It doesn't sound like the city can do much either way - unless there is some reform in state pension law?

Either way, though, the writing is on the wall - a cut of services and higher taxes must be in the works regardless of if the city manages its fund or the state does; right?

Maybe somebody needs to evaluate if the 'penalties' for force reduction / limitations to the pension for new people are as steep as the long-term cost of operating the way we are now. I'm not hearing anything about mitigating future damages, just putting a bandage on the severed artery.

Thanks so much for bringing me up to speed!

[BrianTH]

Originally Posted by shlewis

It doesn't sound like the city can do much either way - unless there is some reform in state pension law?

Unfortunately yes. All this is about exactly how and when the pension obligations would be paid. But the fundamental issues aren't being addressed, and that will take a reform of state law.

Either way, though, the writing is on the wall - a cut of services and higher taxes must be in the works regardless of if the city manages its fund or the state does; right?

Eventually, yes, assuming nothing changes. But we are talking about a 30-year process, so perhaps state law reform will happen somewhere in that period.

Maybe somebody needs to evaluate if the 'penalties' for force reduction / limitations to the pension for new people are as steep as the long-term cost of operating the way we are now. I'm not hearing anything about mitigating future damages, just putting a bandage on the severed artery.

The City has already cut its active force despite the consequences, but there are limits to how much that makes sense. To briefly review, the state taxes out-of-state insurance to create a pension-contribution fund. So, insurance companies and property-owners in Pittsburgh are paying into that fund through their part of this tax. Then the state contributes those funds back to municipal pensions based on the size of their active forces. So if you cut your active force, you still pay the same amount of taxes, but you get back less of a contribution. You are also saving on labor costs, but on the other hand you actually do need police and fire, and you may well gain back some labor costs in terms of overtime and such.

Thanks so much for bringing me up to speed!

You are very welcome. It is a VERY complex situation, and the best approach is by no means obvious. But I do think the one important thing to keep in mind is that most of the really important issues are in the state's hands--the City is basically limited to doing damage control at this point, and hoping the state eventually changes it approach.

[jtpgh]

to move the discussion towards the variuos solutions offered...

I;ve long been opposed to the 50 parking lease concept... just seems too limiting for too long...but a couple of items that I dont think are being discussed enough (at least not in the articles I have been reading)

1) market forces - firstly, the pensions value is determined by the underlying investments...so the means that this 50% funded number is a moving target...if we fund the pension to the minimum, and the assets go down in value, we are right back where we started...

On that same concept, but thinking of state level reform...doesnt seem right that those of us in the private wolrd see our retirement savings dip with the market when public employees dont see the same volatility

Another randomm thought on market forces...RE: selling the parking...In the back of my head i think about the 50 year lease and the value of parking over time...what if social conditions change in the next decade and people are forced to change how we live (environmental issues, run out of oil, etc) and there is less dependence on the car as way to commute...could it be a great move to get a lump sum of $$ for an asset that might not be worth as much as we think it is down the road.

2) cash payment VS. Dedicated income stream - Ive only seen this concept mentioned in one article, but I think it is important... there is a value to dropping a lump of cash into the account now as opposed to the dedication of future revenues via the parking tax (or any other source). Yes, the future revenue commitment does satisfy the state and avert the takeover...it is a stall as there is actually no more money in the fund today than there was yesterday ..just an IOU...

A lump sum of cash does carry the value of increased investment returns on a large fund balance.

Just some random thoughts that have been in my head...

[BrianTH]

Offloading the risk of major reduction in parking demand in the future was one of the major appeals of the lease in my view.

I agree public retirement plans are sometimes better than private retirement plans, but I don't think we should necessarily be going for the least common denominator, in part because it appears there is a good chance the private retirement scheme that has evolved over the last 30 years or so will prove grossly inadequate, which could result in various avoidable calamities. So I'd suggest we rethink both public and private retirement plans, and put together a comprehensive system that would better serve the private sector as well.