CLT UPDATE
Friday, August 3, 2007
"Pension Tidal Wave"
The "ticking time bomb" again acknowledged
We’ve been awash of late in reports about the pitiful
condition of the commonwealth’s transportation infrastructure -- coming
to terms just this week with the fact that we’re at least $17 billion
behind in maintenance and repairs....
But more than anything, what this commonwealth needs is an entirely new
way of thinking about its obligation to provide safe transportation for
all its citizens. We simply must reevaluate the backward system that
finds us using the billions we already collect in taxes and tolls to
finance absurdly generous pensions, or police details on
construction sites, or big vacation payoffs -- at the expense, let’s
face it, of basic maintenance and repairs.
The Boston Herald
Friday, August 3, 2007
A Boston Herald editorial
Deadly reminder of what’s at stake
Barbara Anderson, who has kept a watch on government
spending for decades as head of Citizens for Limited Taxation, said local
governments spent their way into the problem.
Awash
in state aid, local officials caved in to unions and increased salaries and
benefits for their employees.
“In the 1990s, when there was so much local aid, municipalities gave away the
store,” the Marblehead, Mass., resident said. “So cities and towns got
themselves into a huge fixed-cost situation that’s going to become a fiscal
crisis.”
The Eagle-Tribune
Tuesday, July 31, 2007
Pension costs impose hidden fee on homeowners
Stewart Miller, a 65-year-old Andover retiree, also considers
himself lucky. He has a pension comparable to Stella's, earned during a lifetime
working for oil and chemical companies, allowing him and his wife to enjoy
retirement.
But the pension doesn't come with health insurance. Miller is on Medicare and
pays $190 a month for supplemental coverage. He wonders why he and others are
helping pay for benefits that public employees get -- but they don't.
"I don't think that people who run the government town, municipal, as well as
state have really looked at it from a taxpayer standpoint," Miller said, "The
people in our communities can't continue to pay taxes that go along with
increases in benefits."
For years, Massachusetts and most other states, including New Hampshire, have
promised health care and other benefits to their employees even after they
retire.
Now the bill is coming due, as new federal regulations force state and local
governments to account for the post-retirement benefits they have promised.
In Massachusetts, the price tag rivals that of the costliest public works
project in the nation's history, the Big Dig. The state estimates it will cost
as much as $13.3 billion to pay for the health and other benefits of retired
state workers and their survivors....
The issue is beginning to hit home with taxpayers like Miller, increasing the
pressure on government to cut back on public employee benefits.
Said Massachusetts Treasurer Timothy Cahill, who oversees the state retirement
system: "It's a ticking time bomb." ...
Massachusetts' $13.3 billion health care debt represents the cost of
post-retirement benefits promised to current employees and retirees.
The state could continue to pay those costs from year to year, but the debt will
only grow, consuming more of the budget and leaving less for other services.
That would mean higher taxes or reduced services....
In Massachusetts, the task will be complicated by strong public employee unions,
which successfully fought to turn back Gov. Mitt Romney's efforts to have state
workers pay 25 percent of health insurance premiums, as many in the private
sector do.
The Eagle-Tribune
Wednesday, August 1, 2007
Retiree health care expenses a 'ticking time bomb';
Bill rivals cost of the Big Dig
But a report last year by the Pioneer Institute questioned
the value of travel by board members, given that they hire professional advisers
to manage their pension investments. The Boston think tank said board members
across the state exploit weak controls on travel expenses for questionable trips
to popular tourist destinations.
“The least that can be said,” the report concluded, “is that many board members
have taken advantage of these opportunities with what appears to be excessive
zeal.”
Barbara Anderson of Citizens for Limited Taxation concurred.
“I can see people wanting to go some place quiet in the middle of nowhere to
discuss the complexities of the pension system,” she said. “But Vegas wouldn’t
match that description.” ...
Anderson, the Citizens for Limited Taxation executive director, said the
conferences aren’t just a questionable use of taxpayer and pension fund money;
they also raise ethical concerns.
“This is party time,” Anderson said. “It’s having fun with people who are trying
to urge you to put the local money where they want it to go. That’s a decision
better made quietly in your office with your computer, downloading the latest
investment advice from professionals that aren’t drinking with you or sitting by
the pool with you.”
The Eagle-Tribune
Wednesday, August 1, 2007
Far-flung resorts draw retirement board
Both cases went before the Legislature last year. The
Beacon Hill insider got a break but not the local cop.
In the closing days of their session last July, lawmakers rushed through
special legislation giving a pension worth $33,000 a year to Ruane's
widow, over Gov. Mitt Romney's veto. For the second consecutive
legislative session, it let the San Antonio bill die....
The contrast, critics say, is emblematic of the Massachusetts public
pension system open to abuse by lawmakers who exploit loopholes to
benefit well-connected friends and special interest groups and often
themselves....
The special deals come at a cost to taxpayers. A Pioneer Institute study
estimated the price tag for loopholes in the law at $125 million last
year on top of the more than $1 billion taxpayers paid into the system
to make up for shortfalls.
The Eagle-Tribune
Thursday, August 2, 2007
Sweet deals for some:
Back door bargains add to state pension's debt
Peabody resident Juliano, 68, retired four years ago for
health reasons after 23 years teaching computer science at local Catholic high
schools and 18 years before that at Honeywell.
He and his wife, Carolyn, depend on Social Security and modest pensions from the
Archdiocese of Boston and Honeywell. Nearly all his wife's Social Security check
is consumed by the couple's health care costs of $600 to $700 a month. That
includes the cost of buying coverage to supplement Medicare, something that
would have been part of his retirement package had Juliano taught in public
schools.
The Eagle-Tribune
Friday, August 3, 2007
Outrage, lack of fairness fuel debate
over pension reform
A retirement pension is supposed to be used for just what it
says: retirement. It was originally meant to provide a reasonable income to
those who spent the normal working life span of about 45 years actually working.
Not for public employees in Massachusetts, where the whole concept of
"retirement" has been turned upside down. For thousands of former public
employees, a pension is a second income - in many cases a lavish second income -
for people at midcareer, with 15, 20 or even more years of productive working
life left.
An Eagle-Tribune editorial
Friday, August 3, 2007
Public employee benefits need reform
Chip Ford's CLT Commentary
Former state Rep. Tim Bassett is still on our dime,
collecting a state pension and a salary?!? Amazing, who knew.
See the CLT Update, May 30, 2002, "The
platinum parachute"
While you're at it see also the CLT Update, Aug. 31,
2003: "The
Bacon Hill culture of entitlement" and the CLT Update, Sep. 19,
2003: "7th
highest state pension debt with MTF's help aiming for #1?"
Really, what can I add to this excellent research by
the Eagle-Tribune Publication Company in its three-part series this
week, "Pension Tidal Wave" -- still one of the finest
newspaper publishers. The Eagle-Tribune did another excellent in-depth
report in 2003, "When
Teacher's Out," exposing the teachers union's sick leave policy.
This newspaper also published "Embarrassment
of Riches; Towns Rolling in Cash" in 1999.
Some time ago we started an entire section on our
website to address exactly this looming crisis -- "The
Ticking Time Bomb: Public Employee Benefits" as a firewall to the
coming disaster.
We've seen it coming for years. In a North
Shore Sunday news report on May 19, 2002, I was quoted:
Chip Ford, director of CLT operations, needs
little prompting to weigh in on Section 10.
"They keep asking us where to cut," he says. "This is how they
managed to double the budget in the last 12 years. Your paycheck
doubled in the last 12 years, didn't it?"
Ford says lawmakers employ the same scare tactics each and every
budget time, calling on emotional targets, like children, the
elderly, the mentally ill, to be slashed if taxes aren't raised. But
they continue to approve raises and put in for early retirement
checks for themselves.
"What kills me is that people keep buying into it," he says. "They
projected spending a billion dollars over budget and they retire
people early when they're 45? With full pensions? They say to cut
off the mentally ill, starve the children and cut the elderly but
give us our early pensions. That's why we're in a fiscal crisis. And
they wonder why we're cynical."
And it continues until the quickly approaching final day of reckoning . .
.
 |
|
Chip Ford |
The Boston Herald
Friday, August 3, 2007
A Boston Herald editorial
Deadly reminder of what’s at stake
We’ve been awash of late in reports about the pitiful condition of the
commonwealth’s transportation infrastructure -- coming to terms just
this week with the fact that we’re at least $17 billion behind in
maintenance and repairs.
But no white paper -- no chart or graph -- can possibly drive the point
home in the same way as those images of terrified people clinging to the
broken remains of a collapsed bridge in Minneapolis.
As Minnesotans mourn, the cause of the deadly collapse is still under
investigation. We pause to weep for the dead and the injured, and to
praise the heroics of those who leapt into the river to tend to
survivors, or hold the hand of a victim trapped in the wreckage.
But we also can’t help but wonder -- will it happen here?
We had our own wake-up call in Massachusetts just over a year ago, when
those concrete ceiling panels came crashing down in the I-90 connector
tunnel and claimed the life of Milena Del Valle.
In that case our natural (and appropriate) instinct was to blame shoddy
workmanship -- and not necessarily to consider the universe of
calamities made possible by decades of neglecting our roads and bridges,
from Norwell to North Adams.
But in all, Massachusetts has 506 bridges considered by inspectors to be
“structurally deficient” -- the same ranking as the span in Minneapolis.
That designation means a bridge is nearing the end of its useful life
span, not that it is at imminent risk of collapse. But it hardly
inspires confidence.
Of equal concern, we learned from Gov. Deval Patrick yesterday that 27
bridges in Massachusetts have the same “steel truss” design as the I-35W
bridge in Minneapolis, a design, it’s worth noting, that is no longer
used.
Here in the commonwealth we’ve beefed up spending on bridge inspection
and repairs over the past few years and it seems to be paying off, if
slowly. Patrick is expected to release a capital investment plan soon
that will further address the state’s aging transportation
infrastructure. And there will be immediate calls in some quarters to
raise taxes to tend to the maintenance backlog.
But more than anything, what this commonwealth needs is an entirely new
way of thinking about its obligation to provide safe transportation for
all its citizens. We simply must reevaluate the backward system that
finds us using the billions we already collect in taxes and tolls to
finance absurdly generous pensions, or police details on construction
sites, or big vacation payoffs -- at the expense, let’s face it, of
basic maintenance and repairs.
If we refuse to re-order our priorities, the question will not be if it
will happen here -- but when.
The Eagle-Tribune
Tuesday, July 31, 2007
Pension costs impose hidden fee on homeowners
By Edward Mason
High athletes will pay about $140 to play football or baseball this year
because school officials say they can’t afford to pay for sports and
meet all their other financial obligations.
Parents will also pay a user fee of sorts, though most are unaware of
it.
Built into their property tax bills, it’s the hidden cost of pension
promises the city made to its employees but can’t pay without taxpayers’
help.
As cities and towns across the North of Boston region struggle to pay
for basic services, they are spending millions of dollars a year to
shore up public employee pension funds that don’t generate enough money
to meet obligations to current and future retirees.
The cost to homeowners is measurable.
Gloucester, for example, pumped $5.2 million into its pension fund this
year — money that could have gone to school sports and other services if
the pension fund were self-sustaining.
The $5.2 million payment represented almost 6 percent of the city’s
entire budget.
Based on the average single-family property tax bill of $4,515, the
impact fee for the pension debt was more than $260 for the typical
homeowner.
Using the same formula, shoring up the local pension fund cost the
average Massachusetts homeowner $283 this year in Salem, $271 in
Newburyport, $213 in Andover and $199 in Haverhill.
And those figures don’t include what health care benefits promised to
retired municipal employees are costing local taxpayers. Nor do they
include what it costs taxpayers to subsidize the pensions and health
care benefits of retired state employees.
How we got here
For decades, cities and towns paid pension benefits out of their budgets
each year — a pay-as-you-go system. As salaries rose and benefits
increased, they amassed huge pension liabilities with no money set aside
or invested to pay them off.
The state now requires cities and towns to invest a fixed amount every
year to ensure there is money available to pay future retirees.
In Beverly, Mass., Mayor William Scanlon faces a $58.3 million pension
gap and must devote more than $6 million a year to make up the
difference.
Scanlon said that money could be put to better use.
“I’d like to be putting it into roads and streets,” he said.
In some communities, the problem is compounded by investment funds that
perform poorly.
Lawrence’s pension fund, for example, has averaged a yearly return of
only 7.4 percent over the past five years and 9 percent over the past 20
years — among the lowest rates of return among all Massachusetts
municipal funds.
A strong market made last year a good one for most pension funds.
Lawrence’s fund earned 12.5 percent. But it still lagged behind most
other local funds and the massive state fund, which returned 15.5
percent. The difference cost the city more than $3 million.
Lower returns mean less money for other services and more pressure on
taxpayers to make up the difference. In fiscal 2007, it cost Lawrence
$12.8 million to top off its pension fund.
“If we had the same rate of return on our investments as the state, it
could close our annual operating deficit and then some,” Lawrence Mayor
Michael Sullivan said. “We would be able to put more police and
firefighters on the street, and we could take some of the (tax) burden
off our property owners.”
Giving away the store
Barbara Anderson, who has kept a watch on government spending for
decades as head of Citizens for Limited Taxation, said local
governments spent their way into the problem.
Awash in state aid, local officials caved in to unions and increased
salaries and benefits for their employees.
“In the 1990s, when there was so much local aid, municipalities gave
away the store,” the Marblehead, Mass., resident said. “So cities and
towns got themselves into a huge fixed-cost situation that’s going to
become a fiscal crisis.”
Kenneth Ardon, a Salem State College economics professor who has studied
public pensions, disagreed. He said cities and towns got into the bind
they’re in by doing what many people do: failing to plan for retirement.
“They were making promises, but they weren’t putting money aside,” Ardon
said.
As government expanded and salaries rose, the obligation to retired
workers increased. Longer lifespans and soaring health care costs
compounded the problem.
The state began to address the issue in the 1980s, investing money for
its future retirees and requiring local governments to do the same,
Ardon said.
But they are years away from solving the problem.
Danvers, Mass., is ahead of many North of Boston cities and towns on
that score.
Local pension funds are supposed to be fully funded by 2028, but Town
Manager Wayne Marquis is paying more than required each year to shave
four years off the schedule. His annual pension payment of $3.4 million
this year included an extra $314,000.
“I look at it as like a mortgage,” Marquis said. “If we pay it off
early, it’s beneficial to the town.”
A state takeover of poorly performing local pension funds could also
help cities and towns to ease the pension pain.
At the urging of Gov. Deval Patrick, the Legislature this month approved
a controversial bill that will require local pension funds that
significantly underperform the state fund, like Lawrence’s, to turn over
their assets to the state for management. Targeted cities and towns have
a right to appeal the transfer. Other local funds can transfer their
assets voluntarily.
Although pensions are a major expense, not all North of Boston
municipalities want to give up responsibility for their management.
Andover, Mass., Town Manager Buzz Stapczynski, for one, is suspicious of
the state’s motives. He thinks it’s an asset grab.
Yet Stapczynski said he can’t rule out folding Andover’s fund into the
state’s if it would save money by increasing the return on investments.
The town is looking into the idea.
“The option of joining is something we have to consider,” Stapczynski
said. “Richard Howe, a member of the Finance Committee, produced a
report several months ago that showed the benefit of joining. That is a
document that both the Finance Committee and selectmen have taken very
seriously.”
The Eagle-Tribune
Wednesday, August 1, 2007
Retiree health care expenses a 'ticking time bomb';
Bill rivals cost of the Big Dig
By Edward Mason
Michael J. Stella Jr., 63, was a Lawrence District Court judge for
almost 12 years before he stepped down in 2004. Radiation and
chemotherapy for cancerous brain tumors hurt his short-term memory and
he worried he might make a mistake in a trial.
Stella, who was making $112,000 a year when he retired, receives a
$77,321 annual state pension and, even more valuable, state health
insurance.
"It's the most important benefit in the world," said Stella of North
Andover. "I don't know how much (the state health insurance plan) has
paid for my hospitalizations, CAT scans, MRIs, hospitalizations. It has
to be approaching a million bucks. It's keeping me alive."
Stewart Miller, a 65-year-old Andover retiree, also considers himself
lucky. He has a pension comparable to Stella's, earned during a lifetime
working for oil and chemical companies, allowing him and his wife to
enjoy retirement.
But the pension doesn't come with health insurance. Miller is on
Medicare and pays $190 a month for supplemental coverage. He wonders why
he and others are helping pay for benefits that public employees get --
but they don't.
"I don't think that people who run the government town, municipal, as
well as state have really looked at it from a taxpayer standpoint,"
Miller said, "The people in our communities can't continue to pay taxes
that go along with increases in benefits."
For years, Massachusetts and most other states, including New Hampshire,
have promised health care and other benefits to their employees even
after they retire.
Now the bill is coming due, as new federal regulations force state and
local governments to account for the post-retirement benefits they have
promised.
In Massachusetts, the price tag rivals that of the costliest public
works project in the nation's history, the Big Dig. The state estimates
it will cost as much as $13.3 billion to pay for the health and other
benefits of retired state workers and their survivors.
"It's a huge financial drain," said Elizabeth Keating, a Harvard
University professor of public policy and a state pension expert. "The
Big Dig cost $14.6 billion. So it is a very significant number."
New Hampshire health care liability is between $1.5 billion and $2
billion, according to Donald Hill, commissioner of the state Department
of Administrative Services.
Cities and towns in the Bay State and the Granite State owe billions
more. No one is sure of the total because most have yet to calculate
what they owe.
Like the Big Dig, the burden threatens to siphon money from other
priorities, like school aid and tax relief, touching the lives of every
resident of the state.
The issue is beginning to hit home with taxpayers like Miller,
increasing the pressure on government to cut back on public employee
benefits.
Said Massachusetts Treasurer Timothy Cahill, who oversees the state
retirement system: "It's a ticking time bomb."
And the state and its cities and towns have set aside virtually no money
to pay the bill.
Like other states, Massachusetts pays for retirees' health care costs
from its annual budget, a "pay-as-you-go" system. The tab for fiscal
2007 was $319 million, up from $240 million just five years earlier.
Perks of the job
Unlike most private sector workers, state employees are entitled to
health insurance even after they retire. The state pays 85 percent of
the premiums for employees like Stella, or 90 percent for those who
retired before July 1, 1994. Their survivors can pick up the coverage.
State workers who qualify for Medicare must sign up for the federally
funded health care when they reach 65. Stella, a lawyer in private
practice before becoming a judge, will be eligible for Medicare in two
years.
But many state workers do not qualify because they did not pay into
Social Security. The state's Group Insurance Commission estimates it
will cost $172.6 million this fiscal year to pay for those workers,
although it could not say what percentage of retirees they represent.
The state also pays for supplemental coverage to cover gaps in Medicare
for those who do qualify. That will cost another $155 million this year.
Compounding the problem, state workers can retire at a relatively young
age. The median age for the approximately 1,300 state employees who
retired in 2005 was 58, according to a study by the nonprofit Pioneer
Institute.
Critics say legislators have made things worse by continuing to enhance
retirement benefits without coming up with a long-term plan to pay for
them.
For example, lawmakers approved early retirement plans for state workers
in 2001 and again in 2003. Those plans cut payroll costs in the short
term but shifted thousands of state workers onto the retirement rolls at
a younger age, increasing the cost of retiree benefits.
Of the roughly 7,500 early retirees under the two plans, according to
state retirement commission reports, more than half were under 60 and
better than one in 10 under 55.
And those retirees are living longer, said Dolores Mitchell, executive
director of the state Group Insurance Commission, and receiving health
benefits whose cost is steadily rising.
"We're dancing as fast as we can,." Mitchell said of her agency's
efforts to keep benefits steady while controlling costs.
Cities and towns
The same federal regulations that have forced states to disclose the
cost of post-retirement benefits promised to their employees will apply
to most cities and towns next year.
The costs are likely to be stunning, given the example of Danvers.
The town has already calculated its health care liability. It is $100
million more than the entire town budget, more than the combined costs
of its middle school and high school construction projects.
Last May, Danvers took a modest first step toward closing the health
care gap by appropriating $250,000 to invest in a fund to start paying
down the debt. This year, it's looking to invest another $250,000.
The Legislature has also contributed to the local burden. In 2000, it
approved a new retirement plan that increased the amount teachers pay
into the pension fund but allows them to hit the maximum pension of 80
percent of pay and retire at a younger age. Cities and towns pay up to
90 percent of the post-retirement health benefits of retired teachers.
Search for solutions
Massachusetts is not the only state on the hook for billions. California
estimates its health care liability at as much as $70 billion, New York
up to $54 billion, and Maryland and Alabama about $20 billion each.
Nationwide, costs are estimated at more than $1 trillion.
The new regulations do not require states or local governments to set
aside money to pay the future debt, but the disclosure will put pressure
on them to do so. For one thing, those that don't start saving may face
shrinking bond ratings, making it more expensive to borrow money to pay
for new schools and other projects.
Massachusetts' $13.3 billion health care debt represents the cost of
post-retirement benefits promised to current employees and retirees.
The state could continue to pay those costs from year to year, but the
debt will only grow, consuming more of the budget and leaving less for
other services. That would mean higher taxes or reduced services.
If it invests, the long-term pain will be diminished. Keating, the
Harvard pension expert, said an investment trust could slice the debt in
half in 30 years, just as paying off a home mortgage early reduces the
final cost.
Massachusetts once took a pay-as-you-go approach to the pensions of its
retirees. Beginning in the 1980s, the state began to invest money
instead, as individuals do to build retirement reserves.
The state's $50 billion pension fund now grows through a combination of
returns on investment and the state's annual contribution of more than
$1 billion. The state system covers about 176,000 state employees and
public school teachers, and about 96,000 retirees.
Cahill, the state treasurer, wants the state to invest for retirees'
health care, too, now that the $13.3 billion cost has been added to the
balance sheet. "We can't run away and pretend it doesn't exist any
more," he said.
State lawmakers in July took the first step when they put $343 million
from the state's tobacco settlement money into an investment trust fund.
Cutting benefits
Another option is to cut benefits or make employees pay more for them.
That's what many corporations began doing in 1990 when they were forced
to account for benefits promised to their workers. According to Fortune
Magazine, the number of large companies paying for post-retirement
health care dropped from 40 percent to 21 percent between 1993 and 2003
and has continued to fall.
Now state and local governments are under the same accounting standard.
Public employee unions are already sounding the alarm about the threat
to their benefits, and with reason.
In North Carolina, government workers hired after last October will have
to work 20 years to qualify for post-retirement coverage, according to
the National Conference of State Legislatures. The previous wait was
five years. Massachusetts employees qualify after 10 years.
In July, Marin County in California slashed retiree health care benefits
for new hires. The unions agreed on condition current workers keep what
they have.
The city of Duluth, which has a health care debt of $300 million, more
than double its budget, imposed a hiring freeze and raised the time
employees must work to qualify for retirement benefits from three to 20
years.
In Massachusetts, the task will be complicated by strong public employee
unions, which successfully fought to turn back Gov. Mitt Romney's
efforts to have state workers pay 25 percent of health insurance
premiums, as many in the private sector do.
David Holway, whose National Association of Government Employees
represents 12,000 people in Massachusetts, said government officials
should look to curb health care costs rather than benefits.
"They talk about cost-shifting, increasing the amount people pay."
Holway said. "They don't say, 'Let's sit down and figure out a way to
get quality health care at a more economical cost.'"
Joseph L. Masterson, a 74-year-old Danvers resident who retired nearly a
decade ago as executive vice president at North Shore Community College,
is on Medicare but doesn't want to lose his state-subsidized
supplemental coverage.
"You then have to go to the external market to find supplemental care
that has the benefits and the flexibility of the state plan, which is
hard to find and costly," said Masterson, whose state pension is $76,130
a year.
Former government workers would fight to preserve the benefits they
earned, Masterson said, though they might accept greater cost-sharing.
But he said he also recognizes that with fewer private-sector retirees
receiving health benefits, something must be done to relieve the
pressure on government. One answer might be to shift early retirees to
Medicare, he said.
"State retirees at 60 are fully covered by the state," Masterson said.
"That is a fairly high cost. If more people came off that onto Medicare,
that reduces the cost to the state."
Stella, the retired judge, made a point many in the public sector make:
that he traded higher pay in the private sector for better benefits. The
state shouldn't roll them back now, he said.
"I would like to say they should be able to, but that wouldn't be fair,"
Stella said. "I changed my life when I became a judge. I wasn't making
big bucks."
The Eagle-Tribune
Wednesday, August 1, 2007
Far-flung resorts draw retirement board
By Chris Cassidy
They dined at Emeril’s steakhouse, slept at a resort casino on the Vegas
Strip, even teed off at a PGA Championship golf course in Southern
California.
Members of the Essex, Mass., Regional Retirement Board took nine
out-of-state trips in the last two years for conferences and meetings
with money managers, often staying at luxurious resorts and eating at
fancy restaurants as taxpayers helped pick up the bill.
Since 2005, board members spent $37,852 on trips to San Diego, Las
Vegas, Fort Lauderdale, Chicago, Washington, D.C., and New York City.
Taxpayers helped cover the costs, from a $339-a-night hotel room on
Capitol Hill to a $3 ATM transaction fee in Vegas.
Board members say the conferences help them make crucial decisions on
the local pension system, which oversees public-employee pensions for 19
towns and six regional school districts North of Boston.
“We haven’t overdone it,” said
Timothy Bassett, the executive director and chairman of the
Essex board. “If you want to do your job, invest the money well and hit
the returns, you have to go out and learn some things.”
But a report last year by the Pioneer Institute questioned the value of
travel by board members, given that they hire professional advisers to
manage their pension investments. The Boston think tank said board
members across the state exploit weak controls on travel expenses for
questionable trips to popular tourist destinations.
“The least that can be said,” the report concluded, “is that many board
members have taken advantage of these opportunities with what appears to
be excessive zeal.”
Barbara Anderson of Citizens for Limited Taxation
concurred.
“I can see people wanting to go some place quiet in the middle of
nowhere to discuss the complexities of the pension system,” she said.
“But Vegas wouldn’t match that description.”
Three Essex board members flew to Las Vegas in May 2005 to attend the
annual meeting of the National Conference on Public Employee Retirement
Systems — a trip that cost $7,015.
Board members Glenn Morse and Katherine O’Leary spent six nights at the
Mandalay Bay Resort and Casino while Bassett stayed four. The Vegas
Strip hotel features 135,000 square feet of casino space, a wave pool, a
$40 million aquarium, a sand-and-surf beach, two spas and a wedding
chapel.
During their stay, the travelers often ate out at fine restaurants. One
afternoon, board members spent $112 on lunch at Giorgio Italian
Restaurant. A few days later, they dined at Emeril Lagasse’s Delmonico
Steakhouse, named “Restaurant of the Year” by Esquire Magazine.
One month earlier, Bassett, Morse and board member William Martineau
flew to San Diego for a conference sponsored by the Segal Company, the
board’s financial advisers. The trip cost $9,889.
They stayed at the $279-a-night La Costa Resort & Spa and played golf
with Segal advisers on one of the resort’s pristine PGA courses, though
they paid the $75 tournament fee themselves.
In 2006, three board members flew to Chicago for a health care
symposium. The trip cost $8,400 in conference fees, airfare, hotel and
restaurant tabs, and cab fare.
During a trip last year to Washington, D.C., Bassett and Morse stayed at
the Hyatt Regency, two blocks from the Capitol, at rates of $319 a night
(Morse) and $339 a night (Bassett).
On the road, board members also charged minor expenses — a $55 limo ride
to Logan Airport, a $29 phone call home, an $11 cheeseburger, a 50-cent
copy of the Chicago Tribune, a $5 tip to a bellhop.
In many cases, the board members brought their spouses along, although
they were careful not to charge their spouses’ expenses back to the
retirement board.
Board members O’Leary and Martineau did not return phone calls seeking
comment for this story. Morse deferred all questions to Bassett, citing
a board policy that the chairman respond to all press inquiries.
So who pays for the meals, plane tickets and hotel rooms?
In part, taxpayers. Local retirement boards receive money from three
basic sources: the public employees who pay into the system, the returns
on their investments and payments from local cities and towns that, in
many cases, are growing rapidly.
Bassett defended the travel expenses.
“We’ve always had money we’ve spent on board education, and it’s stood
the board well,” he said.
He added: “You think doctors don’t go to conferences to learn how to do
their job better each year?”
In nearly every case, Bassett said, board members stayed at the hotels
hosting the conference, taking advantage of more affordable “conference
rates.”
At Mandalay Bay in Vegas, for example, “it was a ridiculously low rate,”
Bassett said. “I was shocked.”
And the retirement board doesn’t have any control over where conferences
are held, he said.
“We’re hostage to the location,” he said. “Some of the locations were
nice. But going to Washington in February — I wouldn’t consider that an
exotic location.”
The pension fund’s return on investment — 15.8 percent in 2006 — shows
the value of the conferences, he said.
However, the fund’s long-term return has been less impressive —
averaging 8.09 percent over the past five years and 10.38 over the past
20 years, according to state retirement board figures. Haverhill’s
pension fund, one of the better performers, earned an average 10.19
percent over the last five years and 11.84 over the last 20.
Anderson, the Citizens for Limited Taxation executive director, said the
conferences aren’t just a questionable use of taxpayer and pension fund
money; they also raise ethical concerns.
“This is party time,” Anderson said. “It’s having fun with people who
are trying to urge you to put the local money where they want it to go.
That’s a decision better made quietly in your office with your computer,
downloading the latest investment advice from professionals that aren’t
drinking with you or sitting by the pool with you.”
The Eagle-Tribune
Thursday, August 2, 2007
Sweet deals for some:
Back door bargains add to state pension's debt
By Edward Mason
David San Antonio died in 2004 of a rare genetic disorder that left him
blind and wracked with tumors.
Those who knew him say that before he died, the 38-year-old Methuen
police officer accidentally checked the wrong box when filing for his
city pension, leaving his widow and two children without benefits.
J. Michael Ruane was a Democratic state representative from Salem for 30
years, much of it on the powerful House Ways and Means Committee. He
never contributed to the state pension fund or filled out retirement
paperwork. But as he neared death, Ruane asked friends in the
Legislature for a pension that would benefit his widow.
Both cases went before the Legislature last year. The Beacon Hill
insider got a break but not the local cop.
In the closing days of their session last July, lawmakers rushed through
special legislation giving a pension worth $33,000 a year to Ruane's
widow, over Gov. Mitt Romney's veto. For the second consecutive
legislative session, it let the San Antonio bill die.
"They took care of Ruane but didn't take care of this young person,"
said Kenneth Henrick, a former Methuen city councilor who fought for the
San Antonio family.
The contrast, critics say, is emblematic of the Massachusetts public
pension system open to abuse by lawmakers who exploit loopholes to
benefit well-connected friends and special interest groups and often
themselves.
Deals cost billions
The special deals come at a cost to taxpayers. A Pioneer Institute study
estimated the price tag for loopholes in the law at $125 million last
year on top of the more than $1 billion taxpayers paid into the system
to make up for shortfalls.
Kenneth Ardon, author of the study and a Salem State College economist,
estimates $3 billion of the state's roughly $14.5 billion unfunded
pension liability can be attributed to early retirement and other deals
for those in favor with legislators, including members of powerful
public employee unions.
The "Retirement Plus" plan alone cost $1.2 billion, he said. Billed as a
way to older, higher paid teachers to retire early, it also enhanced the
pensions of teachers statewide.
"It means a chunk of money in the future that could have been used for
something else goes to pensions," he said.
Ardon said the system has been so skewed there is no clear relation
between what employees pay into it and what they ultimately receive.
Some state employees actually get less than the value of their
investment, while others get far more.
"There is a disconnect," said Ardon. "What you put in doesn't connect
with what they pay out."
The class system
Different rules for different state workers are one reason for the
disconnect.
Massachusetts divides jobs into four groups. Most employees
administrative, clerical and technical workers are in Group 1. Groups 2
and 4 cover more hazardous jobs or jobs classified as hazardous. Group 3
is for state police.
Workers in Groups 2, 3 and 4 can retire earlier and earn more money than
others.
One example is Haverhill Conservation Officer Mark Sheehan. He is the
only conservation officer in Massachusetts who is a Group 4 employee.
Sheehan said he belongs in Group 4 because he can make arrests and
traffic stops and carries the same service pistol as Haverhill
patrolmen, a Glock 40.
"I do the same job as a police officer or the state environmental
police, and they're also Group 4," said Sheehan, who trained at the
state police academy. "There's nothing underhanded or improper about
this job being Group 4."
Sheehan said his unique status dates to 1987, when the city petitioned
the Legislature to designate the position as Group 4. Two former
Haverhill conservation officers, Stephen Wydola and Brian Carifio, have
already retired as Group 4 employees, he said.
Sheehan said it makes sense for him to have police powers because his
job takes him from urban neighborhoods to deep woodlands within the
city's borders.
The Pioneer Institute cited Sheehan's case in its pension report. Steve
Poftak, Pioneer's research director, said the institute was not aware
Sheehan has police powers, but he stood by its report.
"The point is he's the only conservation officer in the entire state
who's mentioned in the statute, and the law should be consistent,"
Poftak said. "If he's doing more than all the other conservation
officers, than he probably should be compensated for that in his salary
rather than his pension."
Based on his current salary, Sheehan is entitled to a pension of about
$39,000 a year at age 55, almost $16,000 more than if he were in Group 1
like other conservation officers.
The final bump
The inequities are made worse by the way pensions are calculated using
an average of the three highest yearly salaries, rather than the average
of a lifetime of work.
The method entices people intent on bolstering their retirement income
to wild, late-career abuses, Salem State's Ardon said.
Brockton police Patrolman Charles Bradshaw Lincoln, for instance, padded
his income with a second job at the Plymouth County Jail between 2001
and 2004, according to a state inspector general report.
Holding two public jobs for three years boosted Lincoln's pension from
$69,000 to almost $140,000 a year when he retired at 62.
Lincoln was able to hold two full-time jobs by calling in sick more than
250 days at one job or the other. He was charged with fraud but was
cleared in June after other Brockton officers testified it was common
practice to use accumulated sick days as "personal" days when
approaching retirement.
Another quirk allows people to "buy" credit for years they never worked
for the state or local government, in return for payments equal to what
they would have paid into the pension fund at the time. While the state
charges interest, it is nowhere near what the pension fund would have
earned had it collected the money annually, invested it and received a
conservative return, Ardon said.
The gold rush
Early retirement incentive plans approved by the Legislature in 2001 and
2003 were advertised as a way to save money on payroll at a time the
state was in recession.
About 7,500 employees took advantage, cutting payroll by an estimated
$400 million a year, according to the Pioneer Institute study. But the
savings were less than met the eye because some workers would have
retired anyway, without incentives, and some of the jobs were quickly
"backfilled."
In addition, many who took the buyouts were young enough in their 50s
that the short-term savings were erased by the long-term costs of their
retirement benefits. The Pioneer study said the early retirement plans
could increase benefit costs by $1 billion over 30 years.
Lawmakers have their own loopholes.
State law allows elected officials who work a single day in a calendar
year to take credit for a full year of work. So when state Sen. Cheryl
Jacques took another job in November 2003, she didn't resign from the
Senate until January 2004.
In the most notorious case, William Bulger, the former president of the
state Senate and the University of Massachusetts, went to court to argue
his housing allowance and annuity should count as pay not perks. The
state Supreme Judicial Court agreed, sweetening Bulger's pension by
$17,000, to $196,000 a year.
State Treasurer Timothy Cahill, who oversees the state pension fund,
warned that a ruling for Bulger could touch off a "gold rush." Indeed,
after the decision last November, former state employees and politicians
lined up for pension adjustments.
Marie Parente, who was "retired" by voters last fall as a Milford state
representative, argued her Statehouse parking space, and office and
travel expenses, should count toward her pension, adding $4,000 to
$5,000 a year to the $50,000 she now collects. She said she felt like a
"piker" for having worked so long for so little "when that Japanese
pitcher gets $50 million." She was referring to Daisuke Matsuzaka of the
Red Sox. Parente was turned down but has filed an appeal.
San Antonio supporters lose hope
Parente voted last July to override the veto of Ruane's pension but
never got to vote on the San Antonio bill.
Methuen state Rep. Arthur Broadhurst said he and the city's state
senator, Steve Baddour, didn't have the clout. "Some legislators have
more ability to get things through than others," said Broadhurst.
Boston state Rep. Angelo Scaccia, a member of House leadership, pried
the Ruane bill out of the same committee where the San Antonio bill
died. Baddour said he would refile the legislation this year if the
Methuen City Council asks.
The bill would grant a $16,000 annual city pension to the officer's
widow, Susan, and children David, 12, and Kailey, 9.
Henrick remains bitter the Legislature provided for Ruane's widow and
not David San Antonio's, and he has lost hope it ever will.
"You're damn right I'm upset about it," Henrick said. "I'm trying to
help a widow with small children. The bill's dead. I'm not going to push
again."
Staff writers Shawn Regan and Stacie Galang contributed to this
report.
The Eagle-Tribune
Friday, August 3, 2007
Outrage, lack of fairness fuel debate over pension reform
Edward Mason and Stacie Galang
People like Anthony Juliano and Leslie Covui have a stake in the
debate over public pension reform now underway on Beacon Hill.
Not that they have state pensions. But the disparity between the
retirement benefits of private-sector retirees like them and of those at
the top of the state pension food chain is one of the things driving the
debate. And its outcome will affect their lives and those of every other
resident of the state.
Peabody resident Juliano, 68, retired four years ago for health reasons
after 23 years teaching computer science at local Catholic high schools
and 18 years before that at Honeywell.
He and his wife, Carolyn, depend on Social Security and modest pensions
from the Archdiocese of Boston and Honeywell. Nearly all his wife's
Social Security check is consumed by the couple's health care costs of
$600 to $700 a month. That includes the cost of buying coverage to
supplement Medicare, something that would have been part of his
retirement package had Juliano taught in public schools.
"We don't go taking the trips like we used to take," Anthony Juliano
said. "The cars stay in the driveway."
Covui, 75, of Beverly, spent his last 10 working years at Shaw's
supermarkets. He and his wife, Louise, 82, live almost entirely off
their Social Security income of less than $2,000 a month, he said. His
supermarket pension provides him less than $50 per month.
"I just wish I started working for Shaw's earlier," said Covui, who
retired at 62.
But Covui thinks the couple is "doing pretty good" after taking out a
reverse mortgage that provides income that will be repaid upon sale of
their home.
Reform on the table
Massachusetts politicians have created a public pension system widely
criticized as unfair both to many of the people who depend on it and to
the taxpayers who help pay for it.
The question now is whether they have the political will to fix it.
Some lawmakers say there is a growing appetite for pension reform,
whetted by public outrage over pension padding by the likes of William
Bulger. The average state pension is just over $27,000, but the
well-connected collect six-figure payments.
Several issues are before legislators. What to do about loopholes that
add to the state's $14.5 billion unfunded pension liability. How to pay
for increasingly expensive health care for state and local retirees.
Whether to reduce benefits as other states faced with the same problems
have.
Rep. Brian S. Dempsey, D-Haverhill, former chairman of the House
committee that considered pension legislation, said lawmakers could
decide to cap future pension payouts before the session ends in December
2008. One proposal calls for limiting pension payouts to 400 percent of
the state average.
"It would be a straightforward response to the concern the public has
about pension costs," Dempsey said.
Sen. Susan C. Tucker, D-Andover, also sees momentum for change.
"We're moving in the right direction," Tucker said. "When politicians
play games with the pension system, it feeds people's cynicism. There's
a critical mass of legislators who want to see abuses curbed."
In July, the Legislature adopted a long sought reform, allowing
Massachusetts to take over local pension funds whose investment returns
lag the state's, sapping local budgets of money for schools and other
services.
The Amesbury, Lawrence, Methuen and Peabody pension funds fall into that
category.
Gov. Deval Patrick signed the measure into law last week. Patrick had
filed a similar, but tougher proposal, calling for takeover of more
local systems.
Passing even the weaker version wasn't easy, Tucker said, and shows how
difficult reform will be.
"No one wants to give up their hand in the pension systems," she said.
"People fight hard to keep their authority."
Michael Widmer, president of the Massachusetts Taxpayers Foundation,
former Dukakis administration official and longtime Beacon Hill
observer, could not remember the last major pension overhaul.
"It is always difficult to make sweeping changes in the pension system,"
Widmer said. "When you talk about significant change in pensions, you're
talking about state workers and the Legislature."
Lawmakers and state workers have proven to be obstacles to change,
Widmer said. He noted the Romney administration was never able to get
the Legislature to increase state workers' share of health insurance
premiums.
"You see how hard it is to make minor changes in health care
contributions," Widmer said. "To make more significant change in
pensions is a high hill to climb."
Rep. Jay Kaufman, a Lexington Democrat and House chairman of the
committee that deals with pension legislation, is more optimistic about
the prospect of reform.
"We're off to a great start," he said.
He pointed to lawmakers' creation of a $343 million investment trust
fund that will help pay for future retirees' health care, a liability
currently pegged at $13.3 billion.
But there is more to do, he said, ticking off a series of changes he
thinks the Legislature will pass this session.
Lawmakers will be asked to consider basing pension payouts on salary
alone, not perks | a reaction to the Bulger court ruling that counted
the former State Senate and University of Massachusetts president's
housing allowance as pay, raising his pension close to $200,000.
They also will consider recommendations by a blue ribbon commission they
created last year. Those include reducing the number of job
classifications to two | one for dangerous jobs and another for all
others. There are now four groups, and they are open to manipulation by
lawmakers to enhance the pensions of the favored. The blue ribbon
commission also called for a temporary halt to special interest
legislation that grants or inflates pensions to individuals or entire
classes of workers.
Kaufman said his committee is already following those guidelines
informally. His committee now requires representatives of professions
seeking to be moved to a higher pension category to submit an estimate
of what it would cost.
Some local lawmakers think the Legislature should go further.
Rep. Harriett Stanley, D-West Newbury, wants state retirement benefits
to more closely mirror those in the private sector. Stanley would
phase-in a new approach to pensions, with new state workers contributing
more to their retirement benefits through a 401(k)-style plan while
retaining a safety-net pension.
The state already has a deferred compensation plan, called a 457b, but
only 56 percent of workers participate and there is no state match.
Stanley thinks the state should consider some kind of a contribution to
"match" those who save for their retirement in a 457b.
But Stanley said true reform of he pension system won't be easy.
"Because it really is a sacred cow."
Unions divided
Some unions also want change.
David Holway, who represents 12,000 state workers as president of the
National Association of Government Employees, said the Legislature
especially needs to take a hard look at the pension classification
system, which he considers unfair.
Many of the administrative workers Holway represents are in the
lowest-ranking group, retiring later in their careers and with smaller
pensions than others.
But he's not convinced the Legislature will reform that system. "I'm not
sure anyone has the backbone to do this," Holway said.
Others are less eager for change.
The Legislature's blue ribbon commission suggested state workers with
truly dangerous jobs should be paid more while they're working, instead
of in retirement, as now.
But the State Police Association of Massachusetts, whose members can
retire with full pensions as young as their 40s after 25 years of
service, would oppose changes to the system.
John Coflesky, association president, noted that state police pay 13
percent of their salary into the fund | more than other state employees.
"We're trying to fix something that doesn't need to be fixed," Coflesky
said.
Ralph White, president of Retired Massachusetts Employees Association,
declined to discuss proposed reforms because he also sits on the state
retirement board.
But he did say he doesn't believe special pension bills on behalf of
individuals affect the pension system. "While politically it causes
skepticism, it financially has no impact on the finances of the system
because it only represents one or two people (at a time)," White said.
Resistance to sweeping change could also come from state lawmakers who
put pension reform below other priorities.
"I don't think you'll see a groundswell," said state Rep. Theodore C.
Speliotis, D-Danvers. "Most legislators, their first concern is winning
re-election. They care more about Chapter 70 (local school aid) than
about pension reform."
Kaufman said priorities can change.
"It's difficult to change behavior," Kaufman said. "But that's important
to do."
The Eagle-Tribune
Friday, August 3, 2007
An Eagle-Tribune editorial
Public employee benefits need reform
A retirement pension is supposed to be used for just what it says:
retirement. It was originally meant to provide a reasonable income to
those who spent the normal working life span of about 45 years actually
working.
Not for public employees in Massachusetts, where the whole concept of
"retirement" has been turned upside down. For thousands of former public
employees, a pension is a second income - in many cases a lavish second
income - for people at midcareer, with 15, 20 or even more years of
productive working life left. It is a lifetime income that, far too
frequently, is significantly more than those in the private sector can
expect after they turn 65. It comes with health insurance, too.
A few lonely voices have warned during the past decade of the impending
burden from this massive gravy train, but it has remained largely hidden
until now, because only now are new federal regulations taking effect
requiring state and local governments to state publicly what they have
promised to public sector workers and survivors.
The $13.3 billion in promised health benefits to state workers alone,
spelled out in The Eagle-Tribune's three-part series "Pension Tidal
Wave" that concludes today rivals the cost of the Big Dig, infamous as
the most costly public works project in the country, at $14.6 billion.
Local governments are liable for billions more to their current and
former employees, although that total has not yet been specified.
There are many reasons for this impending fiscal tsunami, but most come
down to greed and irresponsibility. The whole concept of "public
service" has also been turned upside down - public employees have
demanded in recent decades that it is the public that should be serving
them. And they have found very compliant responses at the contract
bargaining table, before their retirement boards and in the Legislature.
* Public employees can retire early - very early - and collect a
pension. In Massachusetts, workers qualify for some pension benefits
after working only 10 years. Those with more than 20 years service who
are fired, whose jobs are eliminated or who simply lose an election can
start collecting their pension no matter what their age.
Public safety workers can collect a full pension after only 25 years on
the job. That leads to cases like outgoing West Newbury police Chief
Jonathon Dennis, retiring at age 53 with a full pension and taking a
full-time job as chief in South Hampton, N.H.
* The court decision in favor of former state Senate president and UMass
President William Bulger that his housing allowance and annuity should
be counted in calculating his pension has produced the predictable "gold
rush" by others seeking those and other perks, like the use of a city
car, to be counted toward their pensions.
* Pensions are not based on a worker's average pay over a career, but on
the average of the three years of highest pay. That is an invitation to
abuse - an invitation that has been enthusiastically embraced by many
workers.
* An elected official who works just one day of a year is treated, for
pension purposes, as if he or she worked the entire year.
* The Legislature has created early retirement incentives, which produce
some short-term savings but lead to much larger expenses in the long
term.
* Government officials at all levels have made promises to employees
without setting aside the money to pay for those promises. And what
money has been set aside is not always invested wisely. A study by the
Pioneer Institute last year found that taxpayers are on the hook for $3
billion lost by poorly performing pension funds.
There are some moves in the works to address these outrages. The
Legislature will consider a change in the law to specify that pensions
be based on salary alone, which could eliminate the "Bulger bandwagon"
effect. It has moved to have the state take over poorly performing local
pension funds. It has established a trust fund, starting with a modest
$343 million, to begin funding the $13.3 billion health care liability.
But that is just tinkering at the margins. This crisis will not be
solved until elected leaders have the spine to address the core of it:
Taxpayers simply cannot afford to provide benefits to others that vastly
exceed what they themselves will receive. Lawmakers ought to understand
that much - they frequently talk about "fairness." How is it fair to
tell a taxpayer that he must pay not only for his own health insurance,
but for that of a 48-year-old "retired" state worker as well?
If legislators are serious about reform, they must end early retirement
and health insurance coverage for early retirees. Nobody begrudges
health coverage to those who are 65 and older, but it should not be a
perk for those who quit in the prime of life. Finally, pensions must be
based on average career earnings not the three highest-pay years.
Without shared sacrifice and serious reform, this is a tidal wave that
could swamp the Massachusetts economy.
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