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CLT UPDATE
Saturday, March 18, 2017
"The Ticking Time Bomb" makes
Mass. #1
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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
|
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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.
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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." |
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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
Citizens for Limited Taxation ▪
PO Box 1147 ▪ Marblehead, MA 01945
▪ 508-915-3665
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