The Wall Street shysters and their mouthpieces on CNBC have gleefully ripped Meredith Whitney and her prediction of thousands on municipal bankruptcies. Her timing was early. She didn’t realize that Bernanke would bow down to his masters and produce a 100% stock market gain by pumping $2.5 trillion of free money into the veins of the Wall Street addicts. His actions have solved nothing. Municipalities across the land have unfunded pension and health benefits in excess of $4.5 trillion. And this calculation is based upon annual investment gains of 8%. That’s hysterical when long term bonds yield 2.5% to 3.5% and stocks are priced to deliver 3% over the next ten years. Using a true investment rate of 3% to 4% reveals a true unfunded liability in excess of $6 trillion.
It seems Pennsylvania is ground zero for unfunded pensions and my Township is one of the worst examples of governmental incompetence in the state. How could one state account for 25% of ALL the public pension plans in the entire country? I guess we’ve cornered the market on dumbass public officials, greedy government union drones, and a delusional populace that can’t understand basic math. The Governor and the legislature know that government pension obligations are a looming fiscal disaster. What actions did they take when they passed the 2014 budget last week? NOTHING!!! There are elections coming up in November. You can’t get re-elected by telling voters the truth or getting government union employees mad. This is why we’re doomed. No politician has courage. Greedy government drones will never willingly give up what was promised them by slimy politicians. The average voter thinks money grows on trees. When the next financial crisis hits and wipes 30% to 40% out of these pension plans, accounting fraud and underfunding of these pensions will come home to roost. Meredith’s predictions will come true as municipalities declare bankruptcy and government workers end up with 20% of what they were promised.
My township of Towamencin is singled out in this article as an example of a municipality that has screwed its 17,600 residents by promising its police, firemen and other government workers more than they can ever deliver, without jacking up taxes significantly on the citizens. I pulled up the details of the Towamencin pension plan and annual budget at these links:
According to these reports the Towamencin pension plan is only 61% funded. A township with a $16 million annual budget owes $9.5 million to its workers. It’s assets have an actuarial value of $5.8 million. Of course, all of these figures are complete bullshit because they are based on an 8% annual return on the invested assets. Using the 3% they will actually achieve, the plan is underfunded by $5 to $6 million. That is $800 per household in the township. What is it with politicians and promising public employees gold plated benefits that far exceed what people in the real world receive? In the early 2000′s the annual pension payments for Towamencin were in the $100k per year range. Then Tom ”code red” Ridge and the idiots in Harrisburg passed the “No Government Drone Left Behind” law and set in motion a future fiscal disaster of epic proportions.
The population of Towamencin has not budged since 2000. The annual pension payment has gone from less than $100k per year to over $900k per year. It now accounts for 6% of the annual budget and 11.5% of the general fund budget. It is on automatic pilot and will exceed $1.2 million in three years. This is before the inevitable stock market implosion. After the 30% to 40% losses, the annual required contribution will ramp up to $1.5 million as their tax revenues contract. The politicians that run this township have a history of delusional fantasies. They borrowed millions and used eminent domain to build a $500,000 bridge to nowhere. They wiped out five baseball fields and a quaint antique mall with the delusion of a retail paradise. The bridge is beautiful. It leads from one massive vacant weed infested parcel to another vacant parcel. They did build a massive brand new municipal building for the government drones. They poured millions into a pool that losses patrons every year and operates at a loss. These brilliant financial moves have led to annual debt service of $1.7 million, or 11% of their budget. By 2015 the pension and debt service costs will account for over 20% of the annual budget.
Math is hard. Politicians are toadies. Government union employees are greedy. The taxpayers are on the hook for the promises made by toadies to greedy government drones. Reality will smack all of these delusional morons. The obligations cannot be honored because it’s mathematically impossible. Taxes would need to double in order to honor the unfunded liabilities. If the government drones don’t accept large cuts in their pension and health benefits, municipalities will go bankrupt and the drones will be screwed even worse. The parable of the scorpion and the frog will play out because unions NEVER accept reductions in their benefits. It’s their nature.
Underfunded pensions a growing problem across Pa.
By Ben Finley, Inquirer Staff Writer
Posted: July 06, 2013
Some towns have raised taxes and others have cut services as they endure their own versions of the pension crisis playing out in Harrisburg.
In fact, Pennsylvania – home of 25 percent of all the public pension plans in the nation – has so many ailing plans that pension distress might qualify as an official state illness.
Some Philadelphia suburbs have had to double – even quadruple – their minimum pension payments for retired police officers and municipal workers. And 30 of the area’s municipal pension plans are funded at 69 percent or less, according to Pennsylvania’s Public Employee Retirement Commission.
Pension costs have contributed to tax hikes in Haverford Township and layoffs in Towamencin, and delayed renovations on a police station in New Britain.
As obligations mount, experts predict that more communities will have to raise taxes or cut services.
“It’s up to the locality to find the money,” said James McAneny, executive director of the commission. “But ultimately, the obligation lands on the citizens, the taxpayers, and the residents of the community.”
The recession deflated local pension plans in the same way it drained retirement funds for state workers and teachers. Municipalities can depend less on investment gains to shoulder pension costs, forcing them to spend more tax dollars on retirement benefits.
Overall, local government pensions (not including Philadelphia’s) are underfunded by about $2 billion in Pennsylvania, according to Temple University’s Center for Regional Politics. That’s a fraction of the $46 billion that’s lacking in the pension funds for state workers, public-school teachers, and the City of Philadelphia.
The majority of Pennsylvania’s public pension plans are healthy – funded above 89 percent. But hundreds have lost value. In the Philadelphia suburbs, 29 towns have pensions under a “moderate” level of distress because they are less than 70 percent funded, according to the retirement commission.
Thornbury Township, Chester County, is listed as having a “severe” distress level. Its pension fund for employees is 23 percent funded.
An underfunded pension fund is not illegal, said McAneny. Towns are following the law as long as they make the minimum payments to pension plans.
Addressing the problem won’t be easy. Unlike the statewide plans for teachers and state workers, Pennsylvania has more than 3,000 public pension funds, a quarter of all the public plans in the country. Each varies in size and is governed by a constellation of statutes depending on the type of government involved.
“They’re like snowflakes,” McAneny said. “Welcome to chaos.”
Many towns have weathered rising pension costs with little impact on taxes or services. Lower Makefield, a township of 30,000 people in Bucks County, absorbed a 50 percent jump – about $300,000 – in annual pension payments in five years by reducing other expenses, Township Manager Terry Fedorchack said.
But pension costs have contributed to tax hikes and layoffs in other suburbs.
Towamencin, a township of about 18,000 in Montgomery County, saw annual pension obligations quadruple in 10 years to $800,000, about 6 percent of its annual budget, Board of Supervisors Chairman Dan Littley said. In 2010, the costs contributed to a tax hike of about $136 on the average home, as well as the layoff of five workers. The township also paved fewer roads.
In New Britain Township, a community of 11,000 in Bucks County, increasing pension costs contributed to layoffs of two administrative employees and the indefinite delay of police renovations. The growing costs have consumed about 17 percent of its $1.7 million budget this year, Township Manager Eileen Bradley said.
In Haverford, a township of about 50,000 in Delaware County, pension costs doubled to $2.7 million in five years, amounting to about 8 percent of the township’s budget. Pension costs were a large contributing factor to tax hikes, including a $55 increase for the average homeowner in 2011, according to Jeff Heilmann, a board commissioner.
Haverford has been able to temper rising pension costs by moving newly hired municipal workers into 401(k) plans, shifting the market risk onto employees instead of taxpayers, Heilmann said.
Eugene DePasquale, Pennsylvania’s auditor general, said the stock market downturn had an “enormous impact” on municipal pension funds, resulting in some becoming underfunded.
“The money isn’t owed tomorrow,” he added. “But there’s no question there is a funding gap. And the question is, how do you fix that gap?”
Towamencin has always paid its pension obligations. But in 2011, its pension plans were only 64 percent funded, mostly because of investment losses, said Littley, the board chairman.
The fund continues to improve with market gains, Littley added.
Lawmakers in Harrisburg are considering several statewide changes. One bill would require officials to consider whether a town could afford all of the provisions in police and firefighter union contracts. Another idea is to encourage municipalities to consolidate their plans.
Either way, the stock market won’t solve municipal pension woes in the long run, said Joseph McLaughlin, director of Temple’s Center for Regional Politics. The losses from the recession were too great.
“Sooner or later, these obligations from the past have to be paid for,” McLaughlin said. “There will be tax increases eventually, tied to the operating budget. And they will be caused partly by the need to fund these pensions. And there will be service cuts.”