Pension Impact On The Budget, Pay Now Or Pay Later

In his latest essay, fiscal watchdog John Marshall Lee, who has organized Budget Observer Bridgeport (BOB), a group of citizens attending legislative budget sessions, places a spotlight on city pensions and what the costs represent. Mayor Bill Finch has delayed pension payments, avoiding an election-year tax increase. Lee says putting off the pension payments is a fiscal time bomb. Grab a cup of joe and read the latest about a key component of the city budget.

What Does A Closed Pension Plan Cost the Taxpayer?

Last night (Wednesday) there was a hearing on the City budget 2011-12. It is the only meeting where Bridgeport residents can talk about City finances and possibly be heard by members of the City Council. Last night (Wednesday), nine of 20 were in attendance. During the past three weeks at 12 meetings most members of the Budget and Appropriations (B&A) committee have met to hear about next year’s expenses. Those meetings were open to the public for listening only and handouts for the public are not normally available. While open to all the members of the Council, generally only 3 or 4 are observed in attendance other than B&A members. That means approximately half the Council have minimal or zero contact with the B&A process.

Those people may be very financially savvy or very trusting of their fellow Council members, or they may be woefully unprepared to cast an informed, unconflicted and positive vote for the City’s Annual Budget. That would not be good for the City or the people in the Districts represented.

Three years of no municipal tax increases in an economy with big percentage increases in healthcare, for instance, from a Mayor who campaigned on but failed to deliver a promise of a $600 tax credit, has created some financial skepticism in Bridgeport. And that is how Budget Observer Bridgeport 2011 (BOB) came into being this year. About 30 people, basically any Bridgeport resident, voter or taxpayer was invited to be part of an observation group to attend every budget hearing. They were asked to sense what they could from listening, identify questions they might like to ask, and submit a one-page report. A simple concept with no expense except some copying and time away from family and personal pursuits that is no different from the investment of City Council members.

A major item in the City budget for many years to come is Pension Plan A. It pays income to 866 retired beneficiaries currently. Thirty-three still-active public safety employees will join them in the future. The plan was closed to new members about 25 years ago. Information on this plan is available in this year’s City budget document, in the Comprehensive Annual Financial Report – 2010, in the actuarial valuation report produced annually to calculate needed funding for a plan with assets, in Pension Committee minutes and a letter from the City to the State of CT OPM and Treasurer in April 2010. Has anyone on the City Council reviewed each of these sources or documents, specific to coverage of Pension Plan A? I doubt anyone wishes to answer that question, possibly because one or more of these resources has never been made available to them by the City as an opportunity to learn and become more informed in their “strainer” duty. (Lots of information on municipal finance comes before them monthly. It is their responsibility to listen, question and strain out those things that don’t belong or are unsuitable for funding.) This year the individual actuary from Segal and Company talked for over one hour on Pension Plan A. This was the first time he appeared in person, although he has worked on this assignment for over 15 years.

He brought both a single-page summary and multipage reports for Pension Plan A. The latter contained much info on what has happened over the past ten years to show us where we are with major underfunding, as well as what we will be called to pay in the years out to 2020 and beyond. There was no appetite at that meeting for opening up the multipage document and digging in to the message it delivers to the City. The Board focused on the single-page summary although some members asked how to correct our underfunded plan status without providing the minimum actuarial recommended funding. Are they facing the facts?

How did we get where we are? In 2000 a different Mayor knew the State wants to see funded pension plans at 78.6% of actuarial liability. Our City was not there. The City voted to issue $350 Million of Pension Obligation Bonds committing the City to pay about $30 Million per year for 30 years. We have paid 11 years but face 19 more years of this amount, due and payable. Look in the current Police $15,437,327 and Fire $14,831,942 budgets for the two numbers totaling $30,269,269 and you will understand these millions of bond principal and interest make our public no safer today but only meet an obligation due to bondholders who originally funded Pension Plan A. It benefits former public safety employees, 96% of whom have retired and/or died where their spouses earn a reduced benefit for their life although it does not make their benefits any more secure or funded.

Let’s think of Pension Plan A as a “grassy field purchased by the City in 2000 with a 30-year mortgage. The field is to be maintained by the City” until the last employee or spousal heir is dead. The actuary is our supervising “groundskeeper.” $350 Million was used in 2000 to provide “wonderful sod” for the field. The cost of the sod would be repaid over 30 years and if it were suitably maintained, the sod would provide the funds to pay the retirees their benefits. (That put the City in compliance with State regulations at 78.6% of actuarial liability.) They were also instructed by their actuaries to “water, feed and mow the grass regularly.” Feeding, watering and mowing the sod did not occur in any meaningful manner for six years and has been seriously underfunded in the past four years. (The fund immediately ran into the tech bubblet and significant funds were lost, perhaps as much as $100 Million according to Mayor Finch.)

The City appealed to the State in 2009 to make payments less than minimum actuarial requirements called for. The City no longer seems to care about getting to 78.6%. In April 2011 we are actually at 56.8%. Retirees are also drawing from the fund, currently at a rate of $8 Million in the most recent quarter. That’s $32 Million per year in addition to the bond repayments for the next 19 years. What does the plan have today or how does the “closed field” look today? Unfortunately, it appears like many Bridgeport non-maintained fields. Only 6 years or less of income benefits are likely to be paid with the current market values, based on assumptions and certainly with the below minimum funding levels that the City has negotiated with the State. Where we are guided to be putting away $15-20 Million per year we have been putting away only 25-33% of that amount or even less. The Mayor is looking for better investment returns to bail out this commitment. Higher than market returns encounter greater risk. The B&A was asking similar questions. The answer is that minimum actuarial funding is necessary. Pay $11-20 Million today or pay later at greater cost and greater public anger.

A final comment about Plan A: When the City negotiated with Police and Fire labor unions recently, increases in compensation to current employees still has an effect on the compensation referenced for income benefits for the 900 persons covered by Pension Plan A. Why is there not one reference about the added cost to the City to future funding of Pension Plan A from the recent union negotiations? Why not? City difficulties with finances might offer some pushback to union negotiators as to automatic increases. But if City leaders keep it secret, no one is the wiser and the concerns of taxpayers are ignored instead of providing a reason for union moderation or relief.

Pension Plan A is a significant example of having a responsibility yet failing to deal with it directly. Conflict of interest in elected office is a critical subject today. It comes into play with Pension Plan A, I believe. The Mayor and two of his key financial team are identified as Trustees. Trustees are fiduciaries and have a higher than ordinary duty to act primarily in the interest of beneficiaries. But the Mayor and his financial team as elected or appointed employees want to stay in office. Is it easier to find ways to defer paying minimum actuarial costs rather than raise taxes and pay today’s costs today? Is that decision a conflict for a Mayor? Paying what we need to as we go along must be dealt with fully today, even if it increases taxes. Mayor Vincent “Buddy” Cianci has written a new book POLITICS AND PASTA. His advice to other Mayors, “The first thing a new mayor should do when he takes office is raise taxes, and then blame it on previous administrations.” I raise Pension Plan A funding as it is one example of an avoidance of responsibility that will increase money problems in the future for taxpayers. The City Council needs to play a genuine role as check and balance or “strainer.” Now is the time to get the answers. Fear of raising taxes is a politician’s fear, the fear of losing votes. But fear of even higher tax payments in the future that include increasing interest expense should be a greater fear for taxpayers as voters.

John Marshall Lee, 30 Beacon Street, Bridgeport, CT 06605

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38 comments

  1. This is a train wreck heading for Bridgeport. To put it simply there will be a huge financial obligation the City must pay with a diminishing tax base to pay it. New business who have competent and legal actuaries will avoid coming to this financial obligation by moving to the City. The citizens are not getting any pay increases to offset it. The State does not have the resources to bail out the City, this State cannot even help itself. The Consumer Price Index is rising which is costing every citizen to pull back spending, reducing sales tax.

    I do not mean to be a negative outlook on the city, but the fact is financially the city is heading for a train wreck.

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  2. Trial of Mayor Bill Finch
    A Few Good Pensions

    Finch: You want answers?
    JJA (Judge Janet Arterton): I think I’m entitled to them.
    Finch: You want answers about Pension Plan A?
    JJA: I want the truth!
    Finch: You can’t handle the truth! Judge, we live in a world that has pensions. And those pensions have to be guarded by men with no brains. Who’s gonna do it? You? You, MJF, Gomes, Coviello, Kohut, Lombard? I have a greater responsibility than you can possibly fathom. You weep for Pension Plan A and you curse the City Council. You have that luxury. You have the luxury of not knowing what I know: that Pension A’s death, while tragic, probably saved lives. And my existence, while grotesque and incomprehensible to you, saves lives … You don’t want the truth. Because deep down, in places you don’t talk about at parties, you want me in City Hall. You need me in City Hall.
    We use words like Testa, DTC, McCarthy, Woods, loyalty … we use these words as the backbone to a life spent ripping off City Hall and the taxpayers of Bridgeport. You use ’em as a punchline. I have neither the time nor the inclination to explain myself to the voters of Bridgeport who rise and sleep under the blanket of the DTC that Mario provides, then question the manner in which he provides it! I’d rather you just said thank you Mario and went on your way. Otherwise, I suggest you pick up a ballot and stand a post. Either way, I don’t give a damn what you think you’re entitled to!
    JJA: Did you order the code red on Pension Plan A?
    Finch: (quietly) I did the job you sent me to do.
    JJA: Did you order the code red on pension plan A?
    Finch: You’re goddamn right I did!!!

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    1. Jimfox // Apr 30, 2011 at 12:16 pm
      to your posting

      Jimfox,
      I sent you a posting from my mobile phone at least three hours and I see it’s not on yet, so I will try again. Your piece was a masterpiece for us on OIB …
      Keep the good thoughts rolling, all of us at Gomes HQ see the entertainment value made part of our all having to learn some hard lessons from this administration’s regard for representative government and honest government. We will know on September 13, 2011.

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  3. After attending the B&A hearings it is clear the members of this committee are in over their heads. The one thing that was galling is 1 of its member only saw fit to attend 1 meeting of the B & A.
    Here is an example of Sherwood’s power. One B & A member asked Sherwood why he budgeted for 21 unfilled slots in Public Facilities and Sherwood stated if the economy improves then these spots could be filled. There was no further questioning of Sherwood. He wasn’t asked why he really wanted to keep $896K in salaries and approx $400K in benefits in a budget where it will not be used. I say it’s a slush fund and hidden money. We did find out Public facilities is using seasonal $14 p/h workers more and more. Wonder why your streets were so poorly plowed? There is your answer.
    Sherwood also got the B & A committee to agree to let the administration BOND for capital projects without council approval. Jimfox great post.

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  4. It was quite obvious in attending the B & A hearings Sherwood is the main culprit in this budget dog and pony show.
    The B & A asked him about 21 unfilled budgeted jobs in public facilities and his answer was they are here in case the economy improves. Yeah right. There was no follow up by the B & A committee.
    This means we are paying $896K for ghost salaries and about another $350K in benefits.
    If you add this to the unfilled finance department jobs of which there are 12 with salaries of $771K and benefits of about $300K you have the following monies budgeted for jobs that are not scheduled to be filled $1.6 million in salaries and about $650 K in benefits all totalling about $2.25 million.
    These only represent 2 departments, there are more vacancies that are being budgeted for that will not be filled. Great slush fund!!!

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    1. town committee // Apr 30, 2011at7:42PM
      To your posting

      tc,
      Now multiply that deceptive practice by the number of years SHEROOD has been master of the numbers: these ghost positions comprise just one of the many ways taxpayer money becomes abusively used.

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  5. Carolanne: I know it can be fixed with the great candidates we have coming forward but it can only be fixed next year unless the council steps up and says enough is enough. I don’t see that happening.

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  6. Here is another lie from Finch. Why are people still taking city cars home? Nothing has changed, all of his rhetoric about curtailing use of city cars was pure and utter bullshit. All of the top people and department heads are still driving city vehicles 24-7. Great perk especially now that gas is $4.25 a gallon. These shitheads get to drive home to the ‘burbs and I am paying for it.
    This one ranks up there with the $600 rebate and I will not take my raise this year.

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  7. If there is a train wreck coming when the City hits the $30 Million necessary to pay Pension Plan A beneficiaries and has to find that $30 Million in the General Budget because the Fund is tapped out … and still has ten or more years of the Pension Bond obligation at $30 Million to pay … are any of the 900 retirees concerned???
    If there is a conflict of interest on the part of the Mayor and the other Trustees, is that actionable in court? Does a beneficiary of that Plan have the right to sue for this dereliction of fiduciary duty?
    Perhaps Jimfox, based on his fantastic Federal Court dialog reconstruction, may have a handle on what the opportunities in this regard may be. I do not have a City Pension or know what standing a pensioner has, but clearly those responsible seem to be hiding an important reality from taxpayers as well as from pensioners while wearing two or more hats in terms of responsibilities at this time.
    JIM?

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    1. Pension Protection Act of 2006

      The Pension Protection Act of 2006 (Pub. L. 109–280), 120 Stat. 780, was signed into law by U.S. President George W. Bush on August 17, 2006

      Pension reform
      This legislation requires companies who have underfunded their pension plans to pay higher premiums to the Pension Benefit Guaranty Corporation (PBGC) and extends the requirement of providing extra funding to the pension systems of companies that terminate their pension plans. It also requires companies to analyze their pension plans’ obligations more accurately, closes loopholes that previously allowed some companies to underfund their plans by skipping payments, and raises the cap on the amount employers are allowed to invest in their own plans. This will allow employers to deduct more money using the pension tax shield in times of high profits.
      It requires actuaries to use the equivalent of the projected accrued benefit cost method for determining annual normal.

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      1. Jimfox,
        Congratulations, brilliant piece. Never in the history of OIB have we all completely agreed on anything until now. The great mind I’ve always known is now evident to the masses. I was particularly amused by your using Judge Janet Arterton (of Ganim’s trial) and the Federal Court scenario. It may be prophetic that another Mayor from BPT may sit in the defendant’s chair in New Haven.

        If this ever becomes a movie of the week I hope they can get Jack Nicholson to play Finch. Thanks again for the genius.

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      2. Jimfox,
        You are referencing to what the Federal Government has declared necessary behavior for private firms, the ones that attempt to take risks, make profits and become accountable for promises they make, like Defined Benefit pension plans.

        I believe you will discover the act does not touch upon local, state or Federal retirement plans that are not funded appropriately (like Social Security or Medicare). There are not profits in City government to most taxpayers in any case. There is no Pension Benefit Guarantee fund either. And as we find in Bridgeport, if Finch as Fox is responsible for funding to a minimum standard and pursuing that as a Trustee for the beneficiaries, yet sees that behavior as damaging to his career because taxes will have to be raised, he hides the whole deal under the cloak of the State let me do this. Where are the beneficiaries in all of this? Where is their voice? Maybe it should come from their Union representation? Or do they have conflicts of interest also?
        Wouldn’t it be terrible to wake to the reality the union and City leadership are complicit in getting the most they can from the taxpayer without getting the taxpayer upset? We are chickens and we are laying the golden eggs. And we have the fox in charge!!! Guess you can move your nest … or deliver more golden eggs for the promises the Mayor and City Council have made on our behalf???

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        1. Beacon,
          I have reread your comment and still don’t understand your point. I have previously respected your positions but I am completely at a loss on this one. Please put out the joint & get back to us.

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          1. Sorry AT. Did not mean to lose you.
            I did not light the smoking lamp. Perhaps foxes and chickens in the hen house is too suburban for this site? By the way, I appreciate your vote of confidence in past statements or positions, but hope one posting that doesn’t hit home for you won’t be the end of our mutual admiration society.

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  8. Maybe we should have Fox watching the henhouse door. The Beacon of Light also did a great job in his description of proper greenskeeping duties. This is no Field of Dreams but more like a Field of Screams. Nice job by all.

    Looks to me like we are in a pro-forma Chapter 9.

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  9. Isn’t this a great country? Gasoline is more than $4.00 a gallon and we have an asshole for a mayor, the kind of asshole who seriously believes he’s owed a raise. (Did I mention BILL FINCH IS AN ASSHOLE?)

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  10. I have a question for the city unions. When are you going to grow a pair and say to the mayor enough is enough? The union leadership sold their union members 2 years of givebacks and 2 years of unpaid time off and 2 years in a row the mayor and his cohorts have taken raises. This mayor and his pals all take home city cars and we pay for the gasoline at $4.25 per gallon. Who pays for the gasoline you use to get to work?
    This is a shame the unions have turned into a bunch of hand-wringing babies. You get what you deserve.

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  11. The City’s unions have made their bed with the mayor and when they wake up from this nightmare it will be too late. The City’s unions with their givebacks and huge increase with their medical payments will not see their pay increase even with their pay raises because that will go into paying for that medical coverage.

    The City’s unions are sitting on their hands and have said nothing about David Dunn being the Personnel Director, this is the same David Dunn who was cutting their throats when he was working in the Labor Relations Office. As for the mayor and his pals with their take-home city cars, are they paying federal and state taxes for the financial benefit they are receiving for taking those City cars home?

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  12. Bridgeport is a city that has been managed for the benefit of a white political elite, a business community that only cares about their bottom line. The holders of public office have been beholden to them for decades. The corruption turns into greed and avarice. Politicians say “A chicken in every pot, a TV in every room!” At the same time they are thinking, “I ought to grab some of the money before it runs out!”

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    1. The Bridgeport Kid // May 1, 2011 at 7:39 pm
      to your posting

      Kid,
      Everything you say is right … except they are not elite … they are the white political effete!

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  13. Yes we did, yes we did, those are the words coming from New York. A day I will never forget. God bless America and God bless the troops and Obama sealed the deal and he will win in 2012.

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