The Unsustainable Cost of Local Pensions

American Spectator ^ | 9/1/11 | RiShawn Biddle

[rhema]

You wouldn't think that Erie County, Pa., epitomizes the least visible yet most insidious aspect of the nation's pension crisis. With just 280,566 residents, the county is better known for its once-grand status as being the hub between the Rust Belt metropolises of Pittsburgh, Cleveland, and Buffalo, for the sandy Presque Island State Park, and for being the site of one of the few battles won by the Americans in the War of 1812. But these days, Erie County taxpayers are learning plenty about the high cost of pension and retiree healthcare deals struck over the past five decades by politicians and public sector unions.

In the county seat of Erie, taxpayers have seen the city's pension deficit increase by a 12-fold between 2003 and 2007 to $22 million. Given that the most recent audit by Pennsylvania's state auditor only accounts for pension costs from four years ago -- and doesn't account for the last decade's financial meltdown, the current economic malaise, or new deals such as a new contract with the city's firefighters' union that forces it to hire 20 more hook-and-ladder men -- the cost to taxpayers is probably even higher.

Residents in nearby Millcreek Township -- where police officers and other civil servants get free healthcare -- must cover $5.4 million in pension deficits; residents in the city of Corry struggle with a $2 million tab. While Erie County residents must struggle with a $30 million pension tab for its municipalities, they also face even bigger costs from the county government. The county's pension is underfunded to the tune of $23 million, while the county has set no funds to cover its $69 million in unfunded retiree healthcare costs. And those costs are increasing rapidly. This year, taxpayers will shell out $5 million to cover immediate

[Dilbert San Diego]

Can someone educate us about this?

I heard that the unfunded liabilities could be mostly erased if governments bought annuities, at today’s lower values, to cover their pension obligations. Is that true; are there any finance people out there?

I also heard that a downside to annuities is that there are no built-in cost of living increases. However, with so many state and local government about to have financial meltdowns over pension obligations, somethings got to give. And cost of living increases could be something to give up, in exchange for still having a retirement plan.

[FreedomNotSafety]

Let’s assume for a minute it is true. Were do they get the money to buy the annuities? Some of the obligations are open ended such as paying for all medical care insurance for the life of the retiree.

The annuities are not any better than investing the money. Many retirement funds are already invested with insurance companies. The problem is the amount of money paid in so far is not even close to the amount needed to pay the benefits.

Annuities are just one of many investment options but it does nothing by itself to reduce the benefits levels to affordable level.

[CdMGuy]

It is just the opposite. The higher prevailing interest rates, the lower the cost of purchasing an annuity as the company selling the annuity can invest the funds received for the long term at a higher rate of interest. As they earn a higher return on the invested funds, they need less money up front to cover the annual annuitized payouts.

[therut]

Let the dang retires get Medicare like the rest of us when they turn 65. Quit paying for family members health insurance also. Make them fund most of their pension like the rest of us do. Or find someone else to do their jobs. Alot of them are double dipping and running up their pension payouts with getting OVERTIME for a year before they retire. Quit stealing from the taxpayers who have to fund these things themselves.

[Liz]

Nice deconstruction.

These govt workers are ruining us.

Notice how they whine about the taxes they put into the pot-—BUT the big difference is they take out a huge amt of tax dollars for themselves-—in many cases becoming millionaires.

Struggling taxpayers are stuck paying and paying-—subsidizing these govt millionaires living a life of luxury.

[Liz]

Sorry to say, educators are the worst. Here’s just one case. The president of a mediocre county colleg’s contract included:

$250,000 annual salary,

consulting sideline financed with tax dollars and govt resources

country club membership (that compelled taxpayers to pay for improvements to the club),

personal housing allowance

full tuition for his two sons’ private colleges that cost taxpayers $250,000.

annual office budget of $600,000 to spend at his discretion,

six-figure govt bonuses,

expense accounts,

govt credit cards (also used by his family)

free govt cars, fill-ups, maintenance, auto insurance, EzPasses for tolls, registration and license reimbursements
Cadillac health benefits,

extra pension contributions,

paid residential property taxes over the stipulated amount

free travel and eats for him and his wife,

all expenses-paid off-campus meetings at posh resorts,

Tax-paid country club parties and gifts for underlings that included $2500 golf item

You’d think that was enough for the greedster. However, financial irregularities surfaced in the president’s office. He is now under criminal investigation