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 Detroit’s horrendous fiscal situation couldn’t 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 Detroit’s debt is due to the excessively generous pension and health care plans for 20,000 Motor City retirees. They’re not alone. The Pew Center found that 61 of America’s 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 City’s 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 don’t even include potentially tens of thousands more per Cincinnati household from state-level government pensions. It is therefore no wonder that, on July 15, Moody’s downgraded the City of Seven Hills’ general obligation bonds due to “budgetary pressure” from pension contributions.
In the early 2000s, the City’s 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 System’s 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, we’ll be forced to mortgage our children’s 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.
Cincinnati’s 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.
The biggest problem with Detroit was not only the automobile industry leaving the city, but the shockingly corrupt governments under Coleman Young and Kwame Kilpatrick as Mayors of the city. Not to mention the undue influence of Manuel “Matty” Moroun, the owner of the Ambassador Bridger, who effectively blocked any attempts at improving the connections between Detroit and Windsor, ON until only very recently.
>>As the largest bankrupt city in America, Detroit has seen its population drop by more than half<<
Power of the cities over the rest of the state is diminished. What’s wrong with that? Who knows, states considered Communist strongholds will become more Conservative.
There should be a population limit of 1 million; no need for more in any city. When you reach the limit, start building another city.
Social Security was NEVER actuarially sound. It is NOT insurance. It is not a retirement system. It is a transfer program, taking money from the young and transferring it to the old. WHEN THE OLD OUTNUMBER THE YOUNG IT BREAKS DOWN. Which is what we face now.
It's only a crisis because the politicians of all stripes have been kicking that can down the road for generations. Now we all can see that barrycade at the end of the road.
High time. We need George Washington—and then he should go back to the farm—and take the rest with him.
I wonder if Ted Cruz will be the next conservative to be brought back into line by the establishment. I hear that meetings have started.
Side note: PUBLIC EMPLOYEE UNIONS SHOULD BE OUTLAWED.
There is the problem right there. The City should find where these people and companies are and make them pay their fair share.
The Pensioners are called thieves for bargaining in good faith.
Those that will ultimately pay the bill are not represented. Perhaps rather than have politicians deal with the unions, all labor agreements would have to be approved by the voters.
(And don’t tell me the elected officials that sign off on these deals represent the taxpayers. Once they take money from the unions there exist a conflict of interest.)
There is one other party that deserves some blame in all this, the news media.
Every time there is a labor dispute, the news media takes labors side and demonize anyone that attempts to stand up to the unions.
This house of cards is build on a pile of sand within an earthquake zone. One of these days the entire structure will collapse.
You are correct. Citizen vigilance is key. However, concerned citizens planted in council chambers and even a few public comments at the lectern microphone, will NOT counter the influence of the developers, farmers, manufacturers, welfare pimps, community organizers, police and fire unions, bankers, power company, car dealers, sports teams, lobbyists, foreign leaders, other politicians, and their drinking buddies. ONLY BY REMOVING THE TEMPTATION OF ETERNAL POLITICAL POWER AND RICHES WILL THE SYSTEM BE CLEANSED. Believe me—I’ve seen it up close—there is no such thing as an uncorrupted career politician.
I agree with you about career politicians. Term limits and the power of recall goes a long way towards giving people back their government.
I disagree, though, about the influence of organizers and unions. A village council meeting packed with citizens can easily checkmate the power of lobbyists and organizers. If that fails, then your idea of castrating career politicians kicks in.
Both citizen involvement and exercising the power of the vote, including recall, will work.
As go Detroit and Cincinnati, so goes the US. It will simply take longer.
It’s not what goes on in the meeting that kills you—it’s what goes on at lunches, junkets, golf outings, adult entertainment venues, gulf stream fishing trips, stadium boxes, and conferences in Vegas.
So put all the government pension plan recipients on Obamacare and watch our money problems wash away...
“.. and the Phillipines.”
_____________________________________
I guess you mean “Philippines”.
It is OK. I just as soon die here as anywhere.
Just do not let me die under an Obamination.
I’d venture to say that if one were to research who the person or persons responsible for management of the pension funds, they’d find a level of opulence rarely seen in government. Salaries, perks, working environment, personal power, and very likely kickbacks from invested fund managers.
Management, or more likely mismanagement, of the funds were the primary cause for losses.
You’re an outsider where you are, definitely “other.” It’s naive to think that you’ll be safe and unaffected should the collapse over which you’ve been gloating occur. If your winning ways here on FR are any indication, there are more than a few Filipinos who would quite happily barbeque you, absent any fear of repercussion. Think about that. And, have a nice day.
“it’s what goes on at lunches, junkets, golf outings, adult entertainment venues, gulf stream fishing trips, stadium boxes, and conferences in Vegas”
Yep, you hit another problem, Pete, which is the illegal government meeting. And believe me, the rats are constantly holding illegal meetings, but we have a solution for that called the open meetings law, which every state has.
With the open meetings law, you, as a citizen, can:
1. Have any law declared void that was a result of a meeting that violated the open meetings law. There is a time limit though.
2. Fine local politicians.
3. Throw them in jail.
4. File a lawsuit in court against individual office holders and be compensated all court costs.
This law will vary from state to state.
memphis isn’t far behind, they can’t even fund their own schools, which is why they gave up their charter to the county, threw all kind of monkey wrenches in to the works. All the small towns had county schools, while memphis had it’s own failure schools system. We are now at a 27 board member county wide board, and they want more reps. The entire plan is for memphis to run the entire county school system within 3 years. They did not count on the ‘tiny’ towns fighting back and demanding their own school systems. The state legislature backed them as it is now GOP controled as is the senate, we’d be in fairly good shape if not for the RINO governor halsam.
Sure, open meeting laws. That’s when you exceed the limit of allowed council members. At the local level, it’s usually a quorum. But I’m talking about the private meetings where the deals are REALLY made: the developer gets a promise his plans will be approved; the casino owner gets a garage taken by eminent domain; a car dealer gets some real estate rezoned. ALL BOUGHT AND PAID FOR. Of course, you will never see it.
In addition, the corruption is so subtle you may not even see it when you are sitting in the council chambers. For example, before council gets to the agenda, they usually have some consent items: no discussion. Just routine clerical matters, right? Wrong. Let’s say there is a fund transfer, or a contract certification, or setting a date for requests for proposals.
YOU MAY BE WITNESSING MISAPPROPRIATION OF FUNDS UNDER YOUR VERY NOSE and not recognize it. One trick they like is to pay for things out of special funds (a gray area, with lengthy justifications by smart bureaucrats) so they can preserve their general funds—to BUY VOTES, OF COURSE. The corruption is so pervasive and systemic, only a complete overhaul of the whole stinking mess will suffice. The SWAMP HAS TO BE DRAINED. Term limits.
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