Skip to comments.Cincinnati Must Face the Crisis that Sealed Detroitís Fate
Posted on 11/02/2013 4:16:53 AM PDT by Kaslin
Editor's Note: This column was co-authored by Prof. Richard Vedder, the Distinguished Professor of Economics Emeritus at Ohio University.
Cincinnati and Detroit are separated by barely more than 250 miles a five-hour drive at worst, or under an hour by plane. Despite this proximity, many Cincinnatians would prefer to believe that Detroits horrendous fiscal situation couldnt possibly hit their city. Not so fast.
As the largest bankrupt city in America, Detroit has seen its population drop by more than half, unemployment soar to well over double the national average, and services decline. This is what happens to a locality mired in $18.5 billion of debt.
No, Cincinnati is not in immediate danger of that degree of collapse. But as Ohioans with some 75 years of combined experience in public service and fiscal policy, we both strongly believe the City should learn a lesson from Detroit now before the seeds of such a crisis grow out of control.
Roughly half of Detroits debt is due to the excessively generous pension and health care plans for 20,000 Motor City retirees. Theyre not alone. The Pew Center found that 61 of Americas major cities had a total gap of $217 billion in unfunded pension and health care liabilities, and determined that ample benefits had been guaranteed to retirees without a viable way to manage the inevitably high long-term costs.
Cincinnati has been strained by bloated pensions for several years now; leaders appointed two task forces and created a Board of Trustees for overhauling the Citys retirement programs between 2007 and 2010. By 2011, that Board was warning of pension fund insolvency for City workers within 21 years Although the City Council instituted reforms in response, more recent news indicates there is a great deal of urgent work still to be done.
In June of this year, Ohio Auditor David Yost sent a letter to City officials, detailing an $862 million unfunded pension liability as of the end of 2012. That works out to over $6,500 for every household in the City. Other estimates, using different financial assumptions, put the total much higher and those numbers dont even include potentially tens of thousands more per Cincinnati household from state-level government pensions. It is therefore no wonder that, on July 15, Moodys downgraded the City of Seven Hills general obligation bonds due to budgetary pressure from pension contributions.
In the early 2000s, the Citys pension plan was nearly 100 percent funded. But thanks to poor investments (including the 2008 market crash) and policy miscues, the funding now sits at a paltry 61 percent and the debt is accelerating. Between 2012 and 2013, the unfunded liability rose by nearly one-fifth. According to a consultant for the Cincinnati Retirement Systems Trustees, if left unaddressed the burden will only worsen through 2042, when it will be a mere 40 percent funded.
By doing nothing on pension reform, the most at-risk Cincinnatians stand to lose out first. As the public pension program devours an ever-greater share of receipts, government services are almost certain to be starved. The pressure to raise taxes will also be greater, making the City a more expensive place in which to reside. As Chicago Mayor Rahm Emanuel famously declared, Without pension reform, well be forced to mortgage our childrens future to pay for our past. Meanwhile, City workers themselves would have less certainty for their own financial futures.
Next week, Cincinnati voters have a chance to address these pension problems at the ballot box. Issue 4, a Charter Amendment Petition, would enroll new City employees in a defined contribution plan, rather than the current defined benefit plan. The amendment would also put in place contribution caps for the City, keep cost-of-living adjustments honest, and stipulate that City employees do not receive paychecks and retirement checks at the same time. These common-sense reforms would be a step in the right direction, and would help ensure that the City does not follow Detroit down the road to financial ruin.
Cincinnatis downgrade and growing pension debt should serve as a warning sign to lawmakers and taxpayers: without major reforms such as transitioning to defined contribution plans, the City faces a daunting road ahead. Fortunately, a saner course is available, one in which everybody, in and out of government, regardless of political party, has a vital stake. Issue 4 may not be perfect, but we urge Cincinnatians to consider the cost of delay. Time is not on the side of this great city.
Private corporations have done away with defined benefit retirement plans. They did so because the law governing corporations now says they have to be funded. Companies can no longer borrow from those funds and then go bankrupt. Cities should be required to do the same.
NJ is facing the same problems as Detroit, and seeing the same consequences: flight of the best & brightest workers and companies, deterioration of services as current revenue is drained by people who retired decades ago, and the out-of-sync high wages of public employees. We’ve laid off a lot of cops due to tax constraints (while teachers still get oversized raises each year), and the services are increasingly consumed by those contributing nothing (schools and police/fire protection being the most visible). Childless white taxpayers have little incentive to stay, simply being handed a bill for subsidizing the permanent urban underclass and illegal aliens.
It’s the same story everywhere: politicians agree to exorbitant employee benefits to get the public employee union votes. Then the politicians underfund the pensions to buy votes. See a pattern? CAREER POLITICIANS ARE THE PROBLEM.
We need term limits. We need the end of vote buying by career politicians. We need an end to career politicians. We need term limits.
Seen this coming for decade and all of sudden it’s a crisis?
Instead of saying GOVERNMENT retirees. Media can't bring themselves to admit who's to blame.
But who agrees to this? Who signs the agreements? Politicians. Why? To get re-elected. Incumbency itself is the single most corrupting factor in our entire political system. Understand the “why” and you have a chance to fix the problem.. Getting mad at some retired building inspector or an old cop doesn’t solve anything.
The problem is career politicians trying to save their phony baloney jobs.
When you look at Social Security you see the pension plans.
Pensioners paid their share of the pension plan and they were funded.
Then the country started borrowing from SS and cities started borrowing from pension plans.
The interest rates fell and the pension plans started losing. As did Social Security, then like the Feds the cities started having to budget their plans.
Now who gets the blame. The Feds or the cities who ran the plans badly and borrowed from them or the pensioners.??
The Pensioners are called thieves for bargaining in good faith.
“We need an end to career politicians. We need term limits.”
What people need to do is get up off their butts and attend city and county council meetings. Most of these meetings are never attended by citizens, and these crooked politicians do whatever they want. The Founders warned that liberty requires vigilance. Citizens have completely failed in that simple duty. Now reap the whirlwind.
It seems I read over and over that many pension plans are not funded.
How were these plans originally set up and what happened between then and now that they are no longer viable. ?
I agree. I proudly can lay claim to attending, and writing about, local government in a three-parish (county) area in North Louisiana for the past 4 1/2 years.
I guess it's a step in the right direction...only applies to NEW city employees means they either need to really ramp up the attrition rate or actually make meaningful reforms like move ALL city employees now to such a plan
After all....a government job (city) pretty much means a forever job...
Cincinnati USED to be a very nice conservative city....then they elected Jerry Springer as mayor...who wrote a CHECk to a Prostitute while NEWLY married, and the stupid Democrats RE-ELECTED HIM, and it’s been down hill ever since.
It also makes the politician 'popular' with the people he works with - ON OUR DIME. Might be time to change the incentives.
MEGA DITTOS TO THAT!!!!!!!!!!!!!!!!!!!
Completely irresponsible spending and it seems that almost no one is immune.
The township next to mine built a “community fitness center” that no one but a majority of the township council members wanted. It cost a couple million to build and is largely the result of keeping up with the Joneses. The people are angry about it but they are the ones who couldn’t be bothered to pay attention.
I’m fortunate to live in a destitute township that has little to pay for because people are engaged. Our biggest problem is being stuck in a larger school district that spends money like its going out of style.
All things in life have an expiration date, including America.
... and the Phillipines.
All that talk and nobody will MOUTH that it’s the Unions at fault..
Unions picking citys clean like vultures..
These people have been pretty much BRAIN WASHED...
The answer is quite easy to solve... too....
Declare WAR on the UNIONS.. they are indeed a disease..
and in most places a political disease.. and an economic disease..
First; dissolve ALL City and State employee unions..
Second; demand ALL federal employees in the State have a choice.. Union or not.. OR GET OUT..
Third; pass a State Law making Obamacare ILLEGAL..