To most observers, analyzing the municipal budget is a serpentine exercise in frustration. What’s fixed? What isn’t? What can be chopped? What must stay? Even with the best intentions at hand, paying pension obligations takes its toll on city taxpayers. For the budget year that begins July 1, the city received state legislative support to restructure the payments to ease the pain of a tax hit. Citizen fiscal scrutineer John Marshall Lee has spent hours following the paper trail of pension obligations covering nearly 20 years. He files this sobering report about what it means in dollars and cents.
It was time to begin planning for promised pensions in 1999 as actuaries calculated the liability for police and fire employees at that time exceeded $430 Million. Pay as you go was looking daunting I suppose, so an initiative to borrow $350 Million through 30-year Pension Obligation Bonds whose proceeds could fund a Pension Plan A Investment Trust seemed like a good idea. The plan included the investment of such funds in such a manner that assets in the trust grew from the underlying investments and along with annual contributions from the City that could meet the retirement income payouts. There were relatively small contributions from the remaining Plan A covered employees per their contracts in recent years. And there were retirement benefit increases when Public Safety employees received income bumps in current contracts after retirement dates.
When you take a journey, it is often wise to check your position and see how you are doing. The City continues to pay $16 Million on behalf of the Police and $14 Million for the Fire fighters out of each budget totaling more than $30 Million annually for 30 years as a re-pay for the bond borrowing. By the time we reach 2029 we will have spent over $900 Million of taxpayer funds to repay the $350 Million originally borrowed.
So how is Plan A working out otherwise as of June 30, 2015?
· In 2015 $34,629,862 was sent to retired employees or their spouses, an increase of $1.8 Million from the year before in spite of deaths that cut or eliminated payout.
· The City contributed $11,407,599 to Plan A with residual employee contribution of $12,344.
· Investment income dropped from $16,684,433 in 2014 to only $778,674 in 2015.
· Annuity payment dropped to $791,042 from $1,893,599 in 2014.
· While no entry indicates the Plan management fees for 2015 that were normally paid from the plan assets as the Trust directs, they averaged over $800,000 annually in 2011 to 2014.
· The 2015 year started with $119 Million in the plan and finished with just under $98 Million.As of April 30, 2016 Plan A assets continue to drop and are currently $68,265,041 from a report from the Investment Advisors at the quarterly meeting May 12, 2016. Trustees for this plan are the Mayor, the Treasurer and Director of Finance of the City. The taxpayers of the City of Bridgeport are bearing the risks of market volatility and downturns which have eaten into the Trust capital on two major occasions in the past 15 years. Longer mortality increases costs, too. With fixed dollar asset returns as low as they have been, pursuit of higher returns has exposed investors to larger risks.
But those in power do not discuss the huge amounts of dollars, lost in interest payments to bondholders, or as investment losses through the years. City taxpayers within three years may face at least ten years where full annual pension payments will be required plus the $30 Million annually to retire Pension Obligation Bonds. Is it too easy to kick obligations down the road and subject future flows to greater interest rate expense as well as the pension funding expense? Plan A? Plan B? Another alternative? Time will tell.
The volatility of pension payments might be in question, but the frequency of payouts is never in doubt–it’s against the law. To delay pension payments is a burden to future workers and makes certain legislators kickers-of-the-can!
Kickers of the can, so far down the road one cannot see where it is landing? Kickers of the can, who have no or only weak explanations when pressed? Kickers of the can, who fear credit rating service downgrades which will make future borrowing more expensive, yes, but the can being kicked creates increased future payment streams that also make future borrowing less likely because those fixed costs crowd out current needs?
Lennie put the title on this piece, not JML. Pensioners get their checks as negotiated, until funds run out, or taxes get too high, and underwater balance sheets and underwater operating budgets crumble. But in Lennie’s words, scrutineers point out things Mayors and elected Council members may need reminders about and taxpayers should remember. Red Rubber Boots!!! What did they mean to the City Council this year? Time will tell.
The City needs to take a hard look at where it is investing pension funds, who is making investment decisions and the returns they are getting.
JML, it seems as if you’re trying to put some of the blame for this debacle on the pensioners, particularly pension Plan A. Those of us who are in pension Plan A were told if we put 8% of our pay in the general fund to pay Bridgeport’s bills then the city would ensure we had a pension for the rest our lives. We fulfilled our obligation to the city and now expect Bridgeport to do the same.
During my tenure on the BFD our local union negotiations were handled by firefighters who for the most part had no experience at Union negotiations. However, the city brought in city attorneys, financial officers and Labor Relations who used David Dunn. It would appear Bridgeport had the most experienced individuals money could buy to handle its negotiations so the problems with the future payments to pensioners, Plan A in particular, should fall squarely on the shoulders of the representatives of the city you feel did a terrible job that costs Bridgeport millions. What troubles me is some of those individuals who cost the city millions are still working for the city still making terrible decisions on behalf of the residents and the future of Bridgeport. When is enough, enough?
Donald,
No blame on pensioners is or was intended. What I attempt to do is to uncover the decisions that are made around finances and see how they work out in real life.
Along the way it is revealed when you get to retirement pensioners no longer have representation from the unions who got them benefits in the first place. That has seemed strange to me. It is a form of marginalization, but it goes along with “follow the money” theory in that when you are retired you no longer are contributing dues to a union, right?
One person looking at the Pension A essay yesterday was floored by the amount of interest we are paying for the Pension Obligation Bond. $550 Million of interest PLUS $350 Million of Principal repay equals the more than $900 Million mentioned above. That is more than $18 Million of interest for this experiment in pension funding during Ganim 1 term. What has Ganim 2 said about this “fiscal time bomb?” We know he has been willing to kick some of MERS police obligations down the road this year that will cost over $55 Million more in interest this year to soften Finch’s last police contract deficit enhancing effects from doing further damage. Perhaps some candidate for Citywide office may look at what the gathering fiscal tsunami of debt and pension obligations is shaping up to look like. Retirees should not feel personally threatened I suggest unless those in power continue in their hidden from taxpayer view decisions that culminate in higher costs THAT DO NOT GO INTO THE POCKETS OF RETIREES. Time will tell.
More than $18 Million of annual interest we are paying as part of the ANNUAL $30 Million repayment of Pension Obligation Bonds. Time will tell.
*** This new pension plan for the F/Dept sounds pretty good, no? I believe it’s 10% in, with at time of retirement you can pick your three highest years, O/T included? It’s not your three “consecutive” highest years with O/T included like my State DOC pension was. Average that out between the three highest years and get 50% of that with an extra 2% for every year after 25 years added, no? So let’s say you end up with 30 years’ service, would you get an extra 10% for the 5 years after 25 years you served? If retired at 35 years it would be an extra 20% for the extra 10 years after the 25-year minimum for retirement? It’s worth staying a little longer if you have the health with that incentive, especially in a high tax state like CT that’s not retirement money friendly. ***
JML is citing bad decisions made in G1 (Ganim’s first administration) using a high-risk approach to finance pension obligations. The taxpayers are paying for that mistake while the pensioners are unaffected. Is the solution to delay fully funding pensions and make balloon payments in later years? What a disaster.
Tom, you are right when you say pensioners are not paying now. I will tell you we paid when we were active, we took zero % raises year after year and the city gave us benefits.
Pension plan A people are dying at a steady rate, of the 18 guys who were on my shift 15 are dead. We have no representation on the pension board, we have never seen figures on how many are receiving pension plan benefits. It could be each administration has been taking from the pension funds to pay city bills. Think about it. The city claims they lost money in the market overall, well in the same time period I made money in the market. How is that?
This a perfect example of what happens when the City adopts a short-term solution to a financial problem that pushes the day of reckoning down the road.
The City adopted the Ganim pension financing plan in the late 1990s and has repeatedly sought to defer or reduce the required payments. As a result the out-year payments have soared.
Pension payment deferrals are financially irresponsible and politically attractive. In fact, Bridgeport did it again this year to widespread acclaim. That has to stop.
It is long past time for the City to come to grips with the pension issues facing it, starting by making payments when required.
That said, I do not agree with those who think cutting the benefits paid to retired city employees should be part of the fix. Those employees did often hazardous work for many years and should not be expected to clean up a mess they didn’t create.
Well said, Phil Smith.
Reduced pension contributions represent deferred spending increases and put public future pension benefit payments at greater risk. Bridgeport’s financial numbers and competitiveness figures are clear and compelling. The City will have to eventually declare bankruptcy absent serious restructuring by a state-appointed Independent Financial Control Board. The pending higher mil rate will only serve to make Bridgeport a less attractive place to live and do business. Watch what happens in connection with Puerto Rico. It may be a precursor to the approach that will ultimately be taken to address government entities that need major transformational reforms. Bridgeport is clearly in that category. Mayor Ganim has yet to agree on a time and date to meet despite his public claim he would “love” to get my advice!