In recent weeks, Joshua Norman wrote a guest column in the Newton Tab about the city’s mounting pension deficit.
Like many municipalities across the country, the gap between the money flowing into the city’s pension fund vs the money promised to future retirees has been steadily growing for many years. At some point though, something will have to give. Either the tax payers eventually will have to ante up the promised monies or the promises made to future retirees will have to change.
These sort of problems are always the hardest ones to address since the chickens don’t come home to roost until some point in the future. The easiest thing to do is just to keep kicking the can further down the road.
Focusing some attention on these sort of long term financial issues is certainly a good thing. Kudos to Mr Norman for raising the issue. Frankly though, I can’t really get my brain around the details of these kinds of financial problems. That’s partly why these issues tend to be so hard to solve. The eyes of voters like me tend to glaze over when confronted with balance sheets, actuarial tables and growth charts.
What do you more financially literate readers make of Joshua Norman’s analysis of the pension problem? What do you make of his recommendations?
I think ending future people into the pension should be looked at very closely. I work for a small business (not my own) and I have zero pension. Many private companies have ended pensions and it is time to treat all citizens equally. I am fine with supporting social security but I am not fine with the current MBTA pensions and others. Past people have made promises that will be broken and should. I can’t continue funding all the government pensions and health insurance. In reality I have a hard time funding my own health insurance and my own retirement and my kids college……my salary has been constant but my take home pay shrinks yearly due to my companies increases in health insurance. We need to rethink retirement and when people retire and how is paid out. I don’t know how to change the current people pulling pensions but stopping additional enrollees is an option.
That’s paint
What’s a pension?
Denis, its something that you don’t get for yourself if you work in the Dreaded Private Sector but have the responsibility of paying for for those in the Public Sector.
Newton Mom, when the next override tax increase package comes on the ballot around 2018 or so, I hope you’ll be voting NO-NO-NO that time.
Joshua,
When any override is presented, I listen and research first, before I decide if I vote yes or no. I don’t have anything against new schools and new buildings, which Newton needs. But I remain open minded until the question is put to a vote. I can’t say NO NO NO for something in 2018. I hope you understand.
– This is not news.
– The chickens are already coming home to roost.
– OPEB rules are determined by statute.
– Newton’s burden is relatively in line with other cities.
– Legislation is being developed on Beacon Hill to address this.
– Any municipality would be taking on major risk to move on this until the ramifications of that legislation is known.
finally, this has absolutely nothing to do with last spring’s override.
@Newton Mom,
The approach you outlined makes sense. I was actively opposed to the ’08 override, and actively in support of the one this year. Why? The circumstances were different.
To Bill’s points, OPEB is the real wild card here. For pensions, there is a well established process for closing the unfunded liability gap: for Newton that is slated to end in about 25 years. There is not yet any such broad based process in place for OPEB, and it will take intestinal fortitude on the state’s part to move this toward a pensions-like solution.
Dan – what is that process for closing the gap?
Hoss – you’re right. I’ll change the headline to “…mounting red paint”
Newton Mom, Do you know how much compensation spending increased in FY 2014 versus 2013? Oh, about $11.4M! How much was the 2013 override again? I think you can make the connection. We opposed the 2013 tax increase package because Newton taxpayers already paid for infrastructure and we didn’t see the need to pay for it again simply because city government took the money that was set aside for infrastructure and spent it on compensation.
http://newton.patch.com/groups/newton-taxpayers-associations-blog/p/bp–were-still-concerned-about-newton-public-schools-spending
When the next override comes, would you rather see new school buildings funded by more taxes, more spending and more borrowing or would you rather see them funded by fiscal reforms. During the override, I highlighted ~$12 million/year of revenue inflows and expense reforms that could have and should have taken place to fund the override projects without resorting to tax increases. After the override took place, I found another $40 million/year.
Bill, with regards to your post, I disagree with your conclusions:
-Is it old news that Newton’s unfunded liability has nearly quadrupled since 1998?
-I wasn’t writing about OPEB this time, I was writing about pensions.
-And I am saying that Newton and other municipalities need to push the state to allow them to replace defined-benefit retirement programs with defined contribution programs like cash balance pensions, 403bs and 457s.
-Newton’s pension plan is in worse shape than Hingham’s. Newton’s net unfunded liability is nearly double that of Hingham.
-Explain the risk involved in municipalities reducing salary growth to reduce pension liability accrual growth
-Explain the risk involved in municipalities joining together to lobby the state to replace defined benefit pension programs with defined contribution programs
Actually, this had everything to do with the 2013 override because Newton’s annual municipal side retirement benefit program spending has increased by $8.2 million from FY 2008 to FY 2014. That nearly offsets the $8.4 million annual, permanent operating override.
Jerry, I’d like to say a brief word about closing the pension gap.
In 2004, Newton spent $9.9 million to fund its employers share contribution to the City of Newton’s pension plan trust fund and it was projected to close the funding gap by 2028
In 2012, Newton spent $16.5 million to fund its employers share contribution to the City of Newton’s pension plan trust fund and it was projected to close the funding gap by 2037
Despite the stock market crash in 2008, Newton’s actuarially valued pension asset base increased by $24 million from 2004 to 2012 even though cumulative pension plan payment outflows exceeded contribution inflows by $70 million during this time period.
Unfortunately, Newton’s gross pension liability increased by $151 million from 2004 ($361 million) to 2012 ($512 million)
In conclusion, I’m not sure that the pension plan funding gap can ever be closed with these types of plans.
Dan, with regard to your contention that “the circumstances were different this time in 2013 versus 2008”, the only difference I see is that the issues you complained about from 2008 to 2009 have only gotten worse, especially Newton’s pension and OPEB spending and financial position.
As for OPEB itself, you wrote an article in 2009 expressing alarm at Newton’s $400+ million OPEB liability one year after doing everything you could do to defeat the 2008 override. OPEB is now over $600 million yet you did everything you could in order to get this package of tax increases passed?
http://www.wickedlocal.com/newton/news/lifestyle/columnists/x804163198/Fahey-Do-we-really-balance-our-budget
@Joshua,
You can tell me these numbers now, but I again will wait until I am asked to vote for an over-ride. I need to see how EVERYTHING plays out between now and then. No matter what numbers you tell me now, things will be different at the time of a vote.
And I do want teachers, fire fighters and police fairly compensated. I don’t want to pay for MORE than I should in benefits for them, but again, I will wait until I am asked to vote for something.
I might lean liberal, but I am an independent voter at heart.
For the record, I don’t respond to Joshua.
Josh: We could spend all day listing what $8 million in the operating budget might buy, but that does not prove causation. It just shows that we can count. The override was a referendum that asked voters if they wanted to fund capital and operating needs. The pension fund was not on the ballot. Ergo, the override has nothing to do with the 15 year old pension liability, or global warming, or anything else. You don’t help your argument by invoking it.
Newton Mom, Dan doesn’t respond to Joshua because he doesn’t like the fact that I called him out for his inconsistency.
Bill, I can’t begin to express my disagreement with your conclusions in your most recent post.
If Newton had managed its pension & OPEB plans better, Newton would have been able to fund the operating override projects and programs without resorting to an $8.4 million annual, permanent tax increase. Because retirement benefit spending was not reformed, Newton’s annual outlay on retirement benefit spending for its municipal workers has increased at a rapid rate.
In April, Robert Mashal showed how the amount of money raised by the 2013 override will be dwarfed by the continuously rising costs of retirement benefits unless significant reforms are undertaken.
http://www.wickedlocal.com/newton/news/x935160434/Robert-Mashal-Next-fiscal-challenge-for-Newton-is-retiree-benefits
Money is fungible and money we save from reforming pensions and OPEB can be used to fund infrastructure without having to raise taxes or cut jobs, hours, programs and services.
Joshua: If frogs had wings. They don’t. There is nothing that can be done about the past. It’s time to focus on the real options.
Bill, Bob Mashal is focusing on the future options and so am I.
Even though Newton is restricted from unilaterally changing its pension and OPEB programs, it is not without options in doing so.
Bob Mashal called on Newton to replace its defined benefit pension plans with defined contribution retirement plans and to and rapid implementation of the health care cost containment reforms suggested by the Massachusetts Special Commission to Study Retiree Healthcare and Other Non-Pension Benefits.
For pensions, I called for Newton to take the lead in getting the state to allow municipalities to replace defined benefit plans with defined contribution programs and or reduce salary growth rates.
For OPEB, I have begun looking at that particular program and will circle back with you when I have finished looking at that program.
Joshua: This is a vast improvement in tone and focus, and grounds for a sensible discussion.
Bill Brandel, thanks for the compliment.
I would be worried about the OPEB gap if I were a new teacher. Look at what happened in the union situation with Ford, Chrysler and GM. The veteran employees got to keep good pension and are paid almost twice as much for a “younger” employee.
Go figure!
I personally think we should NOT do a thing about the pensions. Not pay into it. Instead lets wait and see what happens w Detroit. If Federal judge approves pennies on a dollar, most of the states will have no option but to follow the suit. ..
The problem has been caused by blatant conflict of interest, between politicians and unions that elect them. It will be resolved however by courts and public will.
I can’t believe how arrogant both Fahey and Brandel sound when responding to J. Norman’s fabulous research regarding poor fiscal management by Newton elected officials.
Joshua is a young person who is eloquently speaking out for his exploited generation. He has every right to feel angry and disappointed in the problems he has inherited from us, people either retired or near to retirement.
Listen to him and take his views seriously. Stop belittling him. This makes you look very intolerant of the plight young people today face. Higher and ever increasing taxes and burdensome student loans, a very high cost of living and unsustainable healthcare costs are what we are passing on to the next generation. Sickening, that’s what it is just plain wrong.
Thank You Colleen!
Red acrylic. That’s what it is.
Newton Dad, I agree with you 100% about the problems with public defined benefit pensions and that it was caused by a blatant conflict of interest, between politicians and unions that elect them. Fortunately, I have the will to push for fiscally responsible solutions to reform retirement programs.
Hoss, I understood what Jerry was trying to saying with regards to the image. Would you have preferred this image instead?
http://usawatchdog.com/wp-content/uploads/2011/01/ink_spill-300×191.jpg