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CLT UPDATE
Saturday, March 18, 2017

"The Ticking Time Bomb" makes Mass. #1


BARRY: I don't work for the state and so why should I worry about whether my pension, the pension plan, is funded for Connecticut there? Hey, I don't and none of my kids work as a teacher so why am I worried about the status of the pension plan in New Hampshire? Well you should be worried if you pay taxes and own property because tax rates are going to be impacted by unfunded and underfunded pension plans.

Joining us now is Richard Johnson from the Urban Institute. We're gonna talk about the New England pension plan systems. Hi Richard, welcome to the show....

JOHN: Barry, only one state in the country stood out like a sore thumb with an F; that was Massachusetts. What's Massachusetts doing so wrong to be the only state in the country to earn an F? Everything? ...

BARRY: Is it safe to assume that tax rates in underfunded states are gonna go up? I'm looking at the seven, the six New England states and I think the highest grade you gave any of them was a C. And I looked at that and I said if I'm, if I live in that state I have to anticipate that either my income taxes, my property taxes, or my sales taxes, or maybe all of the above are going to increase in order to fund these obligations, because they are in fact contractual obligations.

JOHNSON: That's right. You know we don't know exactly how this is going to play out in terms of, you know, if these plans really become insolvent what, what's gonna happen. But the state constitutions generally guarantee employees that, that the benefits that they have earned have to be paid. And, and so I think it right, I think we're gonna see some big tax increases in the future.

WRKO - The Financial Exchange
Barry Armstrong
Monday, March 12, 2017
Urban Institute, New England Pension Plans

Urban Institute
The State of Retirement: Grading America's Public Pension Plans


There will also be a $2.395 billion transfer to the state pension fund an increase of $196 million over the fiscal 2017 contribution which is expected to keep Massachusetts on track to fully fund its pension liability by 2036.

"The decision to devote increased resources to maintain the current pension schedule demonstrates fiscal responsibility," [Rep. Brian Dempsey, House chairman of the Ways and Means Committee] said in the statement. "This agreement allows us to begin the FY18 budget process and balances the investments of today with a commitment to meeting our long term future spending obligations."

State House News Service
Thursday, January 12, 2017
Beacon Hill budget leaders agree on projected FY18 revenue growth


Massachusetts has committed to paying more than $15 billion over the next 30 years for health insurance for its retirees. But the state has set aside almost none of the money needed to pay for it.

Talk of reform under former governor Deval Patrick, a Democrat, went nowhere. Budget proposals by Gov. Charlie Baker, a Republican, and the Democratic-controlled House would not make a dent in the unfunded liability.

"Each year we delay action on this, the problem gets bigger and more unwieldy," said Carolyn Ryan, assistant director of policy and research for the business-oriented Massachusetts Taxpayers Foundation, which has studied the impact of retiree benefits on state and local governments.

In fiscal year 2014, the state owed $15.6 billion in future health insurance benefits, which must be paid out over the next 30 years. The state had only set aside money to pay for 3.3 percent of that, leaving an unfunded liability of $15 billion, according to state financial documents....

Until recently, Massachusetts funded these other post-employment benefits (OPEB) at the amount that needed to be paid out that year - not the far larger amount of costs that were being accrued that year to be paid in the future. In the last decade, national accounting standards changed to require governments to calculate the amount they committed in future benefits. So Massachusetts learned, for example, that in fiscal year 2013, it budgeted $415 million for retiree health care costs, while employees were accruing $1.3 billion in benefits.

The issue is similar to one facing the state employee pension system, which state officials often talk about the need to fund. But the pension system is better funded. As of 2014, the pension fund had money to pay for 70 percent of its $30 billion liability. It is expected to be fully funded by 2040....

In his 2016 budget, Baker was supposed to set aside $112 million for OPEB, based on a funding schedule, but he proposed instead freezing payments at $85 million, giving him more money to spend on current operating expenses.

"We are definitely considering OPEB reform," said Dominick Ianno, chief of staff at the Executive Office of Administration and Finance. "Unfortunately, in the context of a $1.8 billion budget deficit that we inherited, this wasn't the year we were able to accomplish reform in this area."...

[Carolyn Ryan, assistant director of policy and research for the business-oriented Massachusetts Taxpayers Foundation] said Massachusetts' costs are high because the state has generous eligibility requirements and high health care costs.

Ryan said taxpayers should be worried about the liability. "These are not what ifs. These are actual bills that we've already incurred," Ryan said. "Over the next 30 years, we're going to be paying out $16 billion....You won't be able to spend that money on education, transportation and other things."

The Springfield Republican
April 24, 2015
$15 billion - What Massachusetts needs
to pay retiree insurance benefits for 30 years, but doesn't have


Chip Ford's CLT Commentary

I do a lot of reading, watching, and listening every day for news and information that affects us taxpayers a whole lot.  This is necessary so that data of particular interest can be accumulated for our use, so we know what's happening and can keep you informed.  That's the easy part.

The challenging part is being able to remember all the factoids I come across seven days and nights every week, then recognize and target the connecting multitude of random points.  I love those "Eureka!" moments when my process pays off.  This is one of those.

While performing my ritual morning news sweep on Monday, I had WRKO's "The Financial Exchange" with Barry Armstrong playing in the background on the radio.  When he announced that his next guest from the Urban Institute would explain how Massachusetts ranked at the very bottom in the nation with the most egregious government employee pension liability crisis it caught my attention. [See link below to listen to this program segment.]

I recalled the (above) mention of how much of the governor's proposed $40 billion budget would be devoted to funding the problem (over $2 billion of it).  That supposedly would lead to a fully-funded state pension system in two decades by 2036.

Massachusetts, we're Number One again:  The worst government employee pension liability in the nation!

And that doesn't include the additional $15 billion owed to government employees for their health-insurance-for-life benefits.

We taxpayers are on the hook for decades of inexcusable mismanagement and misplaced priorities as Beacon Hill politicians found other ways to spend our money like obscene pay raises for themselves.

CLT has long-advocated for reform of overly-generous public employee benefits.  We created an entire project of it from 1999 to 2011, repeatedly warned about "The Ticking Time Bomb" of unfunded, underfunded, and overly-generous government employee retirement benefits:


Click above graphic to enter

INTRODUCTION (1999)

As economic cycles rise and fall, only public employee benefits always increase.

As the private sector cuts costs and employee benefits to survive, public employee benefits only increase.

Whether property values rise or fall, public employee benefits always climb.

Nationally, public employee salaries and benefits now exceed those of the private sector by 50 percent, according to the U.S. Bureau of Labor Statistics.

These overly-generous entitlements have for too long been falsely termed "fixed costs."  They are "fixed" by politicians negotiating with public employee unions. "Fixed" is the right word only as in "the fix is in."

The only way to continue supporting public employee unions' ceaseless demands and their steadily escalating salaries and benefits is through higher taxes or with drastically reduced core government services year after year.  Every cent that goes to their luxuries comes directly from strapped tax-paying family budgets.  Taxpayers are receiving fewer and less basic government services as public employees get fatter at the trough.

The end of this continuum is arriving, one way or the other.

Taxpayers have run out of money . . . and patience.  The bill is coming due, and the politically promised money just isn't there by a long shot.

We're tired of this taxpayer-funded double standard. We're fed up with working harder and longer and being taxed more for less just to support the grand lifestyle to which public employees have become accustomed.

This system of abuse and its unconscionable sense of entitlement is about to crash and burn if it isn't very quickly reformed.  When under its own weight it inevitably does, there simply won't be enough taxpayers to further victimize to pay for its unimaginable cost.  We will have been tapped dry, bankrupted.  All of us.  And with us, so too will be the greedy public employees with their unfunded promises all victims of political expedience.

This end is not far off, and the juggernaut plods steadily toward us.  It will arrive sooner or later.  If nothing is done to correct past largesse at taxpayers' expense, it will arrive sooner.  In some places it already has.

Despite our best efforts and those of others to play the role of the Paul Revere of the Pension Crisis, Massachusetts is now rated the most indebted state in the nation, at the bottom of a very deep barrel of government employee pension liabilities.  It's good to see that the governor recognizes this looming doomsday crisis and is trying to dampen its impact, but why are we in this crisis when budgets have increased at a rate of a billion-dollars-a-year for over a decade?  Gov. Baker now wants to throw $2.395 billion into the gaping hole but even with that huge payment it will still take taxpayers almost two decades to pay down the Beacon Hill-imposed liability.

It is those very same Beacon Hill pols "The Best Legislature Money Can Buy" who dug us into this crisis who then had the audacity to just reward themselves with a huge pay raise which of course adds to their pensions which in turn adds to the taxpayers' burden for at least another generation.

Chip Ford
Executive Director

More information on state pensions:

Beacon Hill Institute
Public Pensions in Massachusetts: The True Cost

February, 2013
 


 
WRKO - The Financial Exchange
Barry Armstrong
Monday, March 12, 2017
Urban Institute, New England Pension Plans


08:04 minutes

TRANSCRIPT

BARRY: I don't work for the state and so why should I worry about whether my pension, the pension plan, is funded for Connecticut there? Hey, I don't and none of my kids work as a teacher so why am I worried about the status of the pension plan in New Hampshire? Well you should be worried if you pay taxes and own property because tax rates are going to be impacted by unfunded and underfunded pension plans.

Joining us now is Richard Johnson from the Urban Institute. We're gonna talk about the New England pension plan systems. Hi Richard, welcome to the show.

JOHNSON: Hi, thank you very much for having me.

BARRY: We're glad to. So can you give us what you're grading criteria was for pension plans? I was reading the report, I think was last Thursday when I came across it. But how did you come across the grades? New England didn't do particularly well.

JOHNSON: No it didn't. So we had three broad categories. We looked first of all at the retirement security that the plans provided at the state and local levels. That's a crucial part of the function of retirement plans and it's supposed provide income in retirement writing com. In retirement of older people when it will put on that metric that may look at the funding. How well I'd these promises funded and is likely that this state and local government can meet these funding obligations? . . .

@ 3:57

JOHN: Barry, only one state in the country stood out like a sore thumb with an F; that was Massachusetts. What's Massachusetts doing so wrong to be the only state in the country to earn an F? Everything?

JOHNSON: You know it's pretty much everything. It was bad funding, it was as of two years ago that they weren't making their required contributions at that point, and the structure of that, they had high employee contributions which meant that, because employees had to contribute so much of their pay check into the plan each year it was very hard for them to get anything back from the plan. It was particularly bad for younger workers who would not, really. unlikely to get really much out of the plan at all. And it also in Massachusetts, like Connecticut, and like Maine, at least Connecticut teachers and Maine, are those states employees are not covered by Social Security and that makes it harder to get a really secure retirement out of the plan.

BARRY: It sure does Richard, it sure does. Is it safe to assume that tax rates in underfunded states are gonna go up? I'm looking at the seven, the six New England states and I think the highest grade you gave any of them was a C. And I looked at that and I said if I'm, if I live in that state I have to anticipate that either my income taxes, my property taxes, or my sales taxes, or maybe all of the above are going to increase in order to fund these obligations, because they are in fact contractual obligations.

JOHNSON: That's right. You know we don't know exactly how this is going to play out in terms of, you know, if these plans really become insolvent what, what's gonna happen. But the state constitutions generally guarantee employees that, that the benefits that they have earned have to be paid. And, and so I think it right, I think we're gonna see some big tax increases in the future.

Now what could happen, you know it's possible that others services could be cut and then that could free up some funds to go into the pension plan, but either way, taxpayers, the residents of the state, are going to bear some costs, either through reduced services of higher taxes.

BARRY: Richard thank you very much for your time we appreciate it. Richard Johnson from the Urban Institute, and John, I can tell you. You go into town meetings, you go into city legislatures and you listen to the agenda items and one of the big items on every town's mind is "Gee, we owe a lot of money to our retired teachers, firefighters, and police.

JOHN: And you know at some point these constitutions may have to be amended. If that, if the situation gets so dire the cities and towns will have to go to these unions and say, look we don't have the money.

BARRY: I don't think they'll do that. I think what they'll do is say to future generations, John, we have to cut these pension plans out.

JOHN: Oh no question . . .

BARRY: Like the private sector did. I mean when you began your career did you have a pension plan?

JOHN: No.

BARRY: No? I did.

JOHN: Actually I had one, yeah, and I got bought out of it for like five years.

BARRY: Back in the seventies and eighties when we began our careers, at least that's when I began mine, you had pension plans in the private sector. I think what's gonna happen is they'll be a tax rebellion among Tucker's generation, Tucker's generation's going to be one that wises up and says enough already, my property taxes are going up like crazy and they're gonna say "Get rid of these defined benefit pension plans. We can't afford them." And at least then you stop the bleeding. But we haven't even had that discussion yet.

JOHN: When you look at the grading that was done in this report, the worst category is providing retirement income for short term employees. Short term and long term employees gonna need to think together, that participating in like 401K programs is something you gonna have to do.

BARRY: Yes think about a lot.


The Springfield Republican
April 24, 2015

$15 billion - What Massachusetts needs to pay
retiree insurance benefits for 30 years, but doesn't have
By Shira Schoenberg


Massachusetts has committed to paying more than $15 billion over the next 30 years for health insurance for its retirees. But the state has set aside almost none of the money needed to pay for it.

Talk of reform under former governor Deval Patrick, a Democrat, went nowhere. Budget proposals by Gov. Charlie Baker, a Republican, and the Democratic-controlled House would not make a dent in the unfunded liability.

"Each year we delay action on this, the problem gets bigger and more unwieldy," said Carolyn Ryan, assistant director of policy and research for the business-oriented Massachusetts Taxpayers Foundation, which has studied the impact of retiree benefits on state and local governments.

In fiscal year 2014, the state owed $15.6 billion in future health insurance benefits, which must be paid out over the next 30 years. The state had only set aside money to pay for 3.3 percent of that, leaving an unfunded liability of $15 billion, according to state financial documents.

The basic problem is that the cost of providing health insurance to public retirees is increasing faster than Massachusetts is setting aside money to pay for it.

Massachusetts provides health insurance, life insurance and prescription drug benefits to public retirees and their families, with copays and deductibles similar to those in private plans.

Until recently, Massachusetts funded these other post-employment benefits (OPEB) at the amount that needed to be paid out that year - not the far larger amount of costs that were being accrued that year to be paid in the future. In the last decade, national accounting standards changed to require governments to calculate the amount they committed in future benefits. So Massachusetts learned, for example, that in fiscal year 2013, it budgeted $415 million for retiree health care costs, while employees were accruing $1.3 billion in benefits.

The issue is similar to one facing the state employee pension system, which state officials often talk about the need to fund. But the pension system is better funded. As of 2014, the pension fund had money to pay for 70 percent of its $30 billion liability. It is expected to be fully funded by 2040.

The state has made efforts to fund OPEB. It set up a $350 million fund in 2009, and has been paying into it each year. State officials committed to dedicating an increasing portion of payments from a settlement with tobacco companies. The tobacco payments are projected to increase from $56 million in fiscal year 2014 to $250 million by 2023. A percentage of capital gains tax revenue above a certain threshold also pays for OPEB. But the cost of providing benefits increases annually, so by 2023, the state would still be funding only around half its yearly obligation, according to projections in a state financial report.

In his 2016 budget, Baker was supposed to set aside $112 million for OPEB, based on a funding schedule, but he proposed instead freezing payments at $85 million, giving him more money to spend on current operating expenses.

"We are definitely considering OPEB reform," said Dominick Ianno, chief of staff at the Executive Office of Administration and Finance. "Unfortunately, in the context of a $1.8 billion budget deficit that we inherited, this wasn't the year we were able to accomplish reform in this area."

Baker proposed requiring some employees to pay a higher percentage of their health care premiums, which would lower the liability in the long term because it would affect how much those employees pay for health care when they retire. But facing resistance from state employees, the House Ways and Means Committee scuttled that plan in its version of the budget.

Massachusetts is not unusual. A 2012 report by the Pew Center on the States found that states had set aside just 5 percent of the money they needed to pay for health insurance and other retiree benefits. Seventeen states had no money set aside, and only seven funded at least 25 percent of their liability.

A report released in December by the Center for State and Local Government Excellence found that the mean unfunded OPEB liability per state was $10 billion, and the median was $2 billion. Massachusetts had the ninth highest unfunded liability among all 50 states.

Ryan said Massachusetts' costs are high because the state has generous eligibility requirements and high health care costs.

Ryan said taxpayers should be worried about the liability. "These are not what ifs. These are actual bills that we've already incurred," Ryan said. "Over the next 30 years, we're going to be paying out $16 billion....You won't be able to spend that money on education, transportation and other things."

In 2013, a state task force recommended changes to OPEB, including increasing the age and years of service required to be eligible for coverage and prorating benefits based on years of service. Patrick proposed legislation that would have made some of these changes. But public sector unions protested the changes, which they said would break promises made when employees were hired. The bill did not pass.

State Rep. John Scibak, D-South Hadley, served on the OPEB commission. Scibak said the issue of pension funding has historically gotten more attention than OPEB funding, even though the pension system is in better shape. "It definitely is an issue and a concern, and it's one that has not historically gotten sufficient attention from the commonwealth or from municipalities," Scibak said.

Part of the problem, Scibak said, is spending money to hire police officers or social workers has a tangible political benefit, while no one would see the impact of spending money to pre-fund retiree health benefits. But Scibak pointed out that OPEB costs will continue to rise as long as people continue living longer and health care costs continue to increase, which has been the trend in recent years. Paying for this will squeeze state spending in other areas.

One difference between pension and OPEB reform is that Massachusetts courts have determined that pensions are contractual benefits, so they cannot be changed once an employee is hired. Retiree health care is not protected in the same way, so the state could potentially change benefits or contribution rates.

Shawn Duhamel, legislative director of the Retired State County and Municipal Employees Association, said he believes the Legislature will reconsider OPEB in some way. "The issue of OPEB isn't going to go away. A solution needs to be found," Duhamel said.

Duhamel wants government to focus on controlling health care costs, rather than cutting benefits or forcing retirees to pay more. "The overall problem with health care isn't who's paying the bills, it's the cost of the product in the first place," Duhamel said. "Without addressing the cost of health care and the root of the problem first, you're essentially rearranging the deck chairs on the Titanic."

State Treasurer Deborah Goldberg said the unfunded OPEB liability "remains a concern." "I will continue to work with the Governor, our legislative leaders and labor on ways to more effectively address the issue," Goldberg said in a statement.

Jared Magee, a researcher for the Legislature's Joint Committee on Public Service, said the committee has not yet identified priorities for the coming session. Magee said there have been no bills filed similar to the one filed by Patrick in 2013. But OPEB reform is one of the major issues the committee deals with each session. "The matter of pension liability and OPEB liability is not going to go anywhere until we deal with it," Magee said. "But at least at this early stage in the game, we have no plans yet."

 

NOTE: In accordance with Title 17 U.S.C. section 107, this material is distributed without profit or payment to those who have expressed a prior interest in receiving this information for non-profit research and educational purposes only. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml


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