Bridgeport resident David Walker, the former U.S. comptroller general and CEO of the Bridgeport-based Comeback America Initiative, authored this storm-warning commentary in the Hartford Courant.
In just the past month, three California municipalities–Stockton, Mammoth Lakes and San Bernardino–have filed for Chapter 9 bankruptcy. Consider this a warning shot for state and local governments across the country, especially in Connecticut.
The Institute for Truth in Accounting, for which I am an adviser, just released its annual financial rankings for the 50 states, and it’s bad news for the vast majority. When you consider current liabilities, underfunded pension and unfunded retiree health obligations, a mere six states have sufficient assets to cover their liabilities and obligations per taxpayer. That leaves 44 states with more liabilities and obligations than assets per taxpayer, with Connecticut at the very bottom. (The ranking of all states is at keepingamericagreat.org/new-2010-state-of-the-states-report/)
Those numbers are bad in many cases as well for Connecticut’s cities and towns. For example, the total liabilities and unfunded promises per taxpayer in Bridgeport were about three times as high as Stockton as of June 30, 2010. Although Stockton’s financial problems are more immediate, Bridgeport’s overall financial condition is worse.
A major cause of these disturbing numbers is the amount of unfunded pension and retiree health care obligations that state or local governments have amassed. These burdens were a key factor behind the recent gubernatorial recall election in Wisconsin and those California bankruptcy filings. They’re taking Connecticut toward a fiscal crisis, too.
Time is against us. Demographic trends–and basic math–mean that the finances of Connecticut, Bridgeport, and most states and localities will continue to deteriorate, absent meaningful structural reforms. Their financial situation will be further complicated when the Government Accounting Standards Board’s recently issued pension accounting standards are implemented.
More damaging will be the effect when the federal government finally restructures its finances. Among other things, the federal government will need to significantly reduce its spending, including support to state and local governments. In 2011, Connecticut received almost 40 percent of its revenue from the federal government. The restructuring “bad news” will flow downhill and add to the fiscal challenges of states and localities.
Governors, mayors and other government officials, along with legislatures, need to recognize reality and put their financial houses in order. A critical step will be restructuring pension and retiree health care obligations. In doing so, elected officials must recognize that fairness is a two-way street. Government employees should receive compensation and related benefits that are reasonable compared with those offered by major private employers. Fairness to taxpayers, however, requires that these plans be affordable and sustainable over time.
These determinations must be made by comparing the public and private sector plans (e.g., participation requirements, benefit levels and formulas, employee contributions, retirement ages, indexing provisions).
At a minimum, the following reforms need to be considered:
• Pension and retiree health care plans for new government workers should be competitive with current plans of major private employers. This will result in revising the type of plans and limiting their promises.
• Plans for current workers should be revised to eliminate abuses and better control costs. For example, overtime, vacation and sick pay should not be included in calculating pension payments. In addition, individuals should not draw a government pension when they are working for that entity as an employee or a contractor.
• Pension payments for current employees should not be reduced, but they should be capped. Annual pension indexing should be limited so that retirees cannot make more than a stated percentage of the pay of a current employee in an equivalent position. This percentage should vary based on the retiree’s years of service.
• Individuals who are eligible for employer related health coverage should not be eligible for government funded retiree health care benefits. Those retirees who are receiving such benefits should stop getting them upon becoming eligible for Medicare. In addition, eligibility standards for retiree health care should be tightened.
Government officials and legislatures should reform public employee retirement plans to get the power of compounding working for them rather than against them. Although Connecticut made retiree health care reforms within the past year, they were far short of what is needed.
Government workers deserve competitive plans; however, it’s neither reasonable nor equitable to expect taxpayers to pay significantly higher taxes in the future to fund retirement benefits that are much more generous–for jobs that are much more secure–than they will ever have.
The time for truth, transparency, taxpayer activism and action by responsible public officials is now. Connecticut and Bridgeport can either lead the way to a brighter future or face their own day of reckoning.
David M. Walker is former U.S. comptroller general and CEO of the Comeback America Initiative based in Bridgeport.
Pensions are underfunded because pensioners were overpromised by politicians not currently in office. I believe in rule of law as long as those rules can be revoked. Past obligations have become current problems preventing future progress.
What David Walker calls “meaningful structural reforms,” I call radical restructuring.
Here’s my point: everything that’s happening today started in 1965 when the USA began manufacturing money instead of manufacturing products.
And Obama’s plans for the U.S. are merely “Hope and Change?” These politicians, regardless of their ideology are a danger to the structure of this unique country we call the United States of America. What we need is term limits and accountability at all levels of government, not some pie-in-the-sky “expert” telling us how to be governed. Nor do we need unions telling management how to run their business. Their job is to protect workers, not to run businesses.
What happens to the home owner when/if Connecticut or Bridgeport declares it is bankrupt? I am referring to the value of ones house.
Calling JML.
Walker’s treatise is well thought out and plausible.
The one factor he has ignored that affects the future well-being of this town is the absolute fact we are run by selfish f*!^ing idiots.
We cannot return to prominence so long as Mario Testa and Paul Timpanelli are in control.
While the ass kissers blame President Bush …
blog.ctnews.com/hottopics/2012/07/19/accused-child-foot-licker-blames-president-obama/
WE, that is OIB readers who are interested, could do a lot better if the City leadership starting with Mayor Finch delivered what they are supposed to in a timely fashion. I know I have said that before. And you have read that or listened to that before.
Last week Monday evening I was most surprised to hear the administration, according to Tom Sherwood at a Budget and Appropriations meeting was going to release the June 2012 final monthly report (covering the entire fiscal year) for the first time in over 20 years. He predicted by Friday last. Wow, I thought and reported to OIB.
It did not happen. And it has not appeared by Tuesday noon either. So was this an attempt at humor by the administration? Or something else? Well when I just called the City Clerk, it turns out I am not the only one looking for said report.
And that is what is necessary for the Mayor to hear and understand. He has a responsibility for monthly accountability which he has failed to fulfill in more than half the months he has been in office!!! (When “monthly” becomes “quarterly” or less frequent, and there is never a June report, it is easy to have an “ACCOUNTABILITY” score for this important report of less than 50%. That is one of the reasons I harp on the subject of “lack of accountability.”
On another subject, last night the Fairfield RTM heard one of their unions is looking to switch from defined benefit retirement plans to 401k retirement plans. No further details at the moment, but such a change will make municipal planning simpler and remove certain risks (investment and mortality) from the employer. How are such discussions proceeding in Bridgeport? Time will tell.
JML is our Guardian Angel!
I need a drink! Walker Black served straight up is my choice, while Bridgeport is drowning in Red Ink and on the rocks.
Lennie is a Bombay Man. He prefers his potatoes distilled and not the Gunga-Gin.
Some just want to make sure the CREAM keeps flowing in.
www .ctpost.com/local/article/Bridgeport-ed-board-member-denies-conflict-of-3729325.php
Success in the formal school system in any community from Kindergarten onwards seems to correlate positively with the opportunity to have attended pre-K schools. (In my day these institutions were called Nursery Schools I seem to remember and from my point of view graham crackers, mats for naps on the floor and lots of neat puzzles and games were the attraction.) Today, according to the referenced article, staffing and other State requirements call for institutional expenses of $10-12,000 per child. That seems high, but perhaps someone more familiar with the landscape can fill us in on financial reality.
I do not know Reverend Moales personally. And I am not sure what connection his religious duties, if any, his administrative educational ministry, or his community service activities have. But I have learned in Bridgeport there is little if any appreciation for staying away from conflict of interest situations … either actual conflicts or where a reasonable person (perhaps someone from New Haven, Hartford or Fairfield) will perceive the appearance of one. These are to be avoided in the first place. And secondly, if you allow other people to serve with their points of view, time and talents, the community is that much stronger. We don’t need overtasked heroes. We need lots of good people, getting good info regularly, focusing on matters of personal interest and working in their area for the community at large. That results in a stronger community than we have today, net on net. Time will tell.
Very good article and timely. Let’s look at this point he makes … “For example, overtime, vacation and sick pay should not be included in calculating pension payments.”
Do Bridgeport city workers overload overtime in their final employment year to ensure high pensions? Who is in charge of giving the OK for overtime? And how can we reconcile union worker rights with abuse? What entity is overseeing this?
If the city declares bankruptcy, what procedures are in place? Or is there something that prevents bankruptcy?
Do city council member have an adequate skill set to address the current financial crisis? And since takeovers happen with no advance notice as with the state and Bridgeport BOE, is Hartford looking to take over the Bridgeport city council right now?
Which was at a worse state, the BOE at moment of state takeover, or the current state of city finances and city council?
*** Bpt has been down that bankruptcy road before, no? Did it hurt our credit and bonding rate status; did it impact economic growth; how did it affect large and small business overall; how long did it take to bounce back towards “normal?” Or did it bring national attention to urban industrial cities like Bpt across the country? Did the Feds come up with a plan to start funding grants and other money to States and their urban cities in different ways like pilot programs, food stamps, section 8, health and welfare government-type trainings, school breakfast programs, youth summer jobs, etc.. Fannie Mae, Freddie Mack and so on? After it happens will we get a Mayor like Ganim to distribute the money throughout the city like last time for 12 years without tax increases? *** Makes you wonder. ***
Let’s not blame the victim, Bridgeport firefighters and police who are in Pension Plan “A” have been paying 8% of their weekly pay towards their pension every week of their career but money was never placed in interest-bearing accounts or even in a bank saving account. Instead their money for their pensions was being placed into the City’s General Fund. Firefighters and police officers instead of getting pay raises they instead took less money but were given benefits like a pension increase in order to save the City money.
Bridgeport has created its own financial problems. Bridgeport can fix the problem. It will be painful.
Or Bridgeport can wait, again, until the problem gets so bad that, under law, the problem will be fixed for you. That will be more painful.
How soon you forget.
It’s obvious Bridgeport needs to have the “financial review board” come back to Bridgeport to start the move to correct the financial issues confronting the City.
Some may ask … what warning will there be prior to financial collapse or bankruptcy? I guess follow the money. When state and fed money dries up for Bridgeport, that could be when.
As stated above … “the federal government will need to significantly reduce its spending, including support to state and local governments. In 2011, Connecticut received almost 40 percent of its revenue from the federal government. The restructuring “bad news” will flow downhill and add to the fiscal challenges of states and localities.”
*** Bpt throughout the years in attempting to get something for nothing in their contract dealings always seems to get the short end of the future financial stick that just keeps coming back like acid reflux! Mayors’ past and present favorite line,”we can’t pay you a little now but we can pay you a lot later,” no? *** FUTURE SHOCK! ***
Bridgeport Now:
If a municipal crash happens like it did last time, there will be a period of uncertainty where municipal officials publicly keep a positive attitude while shuffling things around. (Like now.) The hope is something will happen. The city will catch a break or two. It does happen.
In Bridgeport in 1988, a couple goofs compounded a series of issues carried over for years. Some things were problems for so long they were no longer considered problems. It was just the way things were. It is like the bent stop sign on the corner: You get used to it after awhile.
Don’t blame the feds. Don’t blame the state. Don’t blame political corruption. Mojo is more than half right in his comment above about “future shock.”
Many of the issues before Bridgeport have been drilled out into the open by John Marshall Lee. Even if you think Bob Walsh was too partisan–I don’t–he helped as ONE alderman to try to bring these issues out. (If you wanted to see people make hay for strictly political reasons, you should have seen what it was like 30 years ago. By comparison, Walsh was the quiet kid in the classroom waving his hand in the air saying “teacher, teacher.”)
Walker is another voice looking at municipal fiscal realities. He has cred because of his financial background. You may be suspicious of him because of his political background. You may disagree with some of his ultimate solutions as political outside the comfort range of the community. That is fine. That is why aldermen and mayors are elected. There is more than one way to skin a budget.
But know you are going to have to skin it. Either you do it, and soon, or you will have a train wreck like in 1988 again.