From John Curry, January 18, 2011
"These are just the two latest signs in our region of a crisis that governments across the nation face - public employee pension systems that face crushing deficits, often caused in part by overly generous benefits that were expanded in economic boom times but have now proven unsustainable."
Gee...that wouldn't be like STRS paying out 88%/35 years when all the other Ohio systems only paid 77% and still do, would it? Nawww.....that couldn't be!
We must tackle our pension problem head-on
January 15, 2011
On Thursday, Cincinnati Retirement System trustees failed to agree on a pension reform plan, setting up a renewed clash among taxpayers, city employees and retirees on how to fix the system's projected $1 billion-plus shortfall. Meanwhile, the Kentucky Senate considered controversial legislation to convert the state's pension system, which faces a $30 billion shortfall, to a 401(k) format for future employees.
These are just the two latest signs in our region of a crisis that governments across the nation face - public employee pension systems that face crushing deficits, often caused in part by overly generous benefits that were expanded in economic boom times but have now proven unsustainable.
The figures are staggering. A Northwestern University study puts the states' total unfunded pension liabilities at $3.3 trillion, while the nation's cities face $574 billion in shortfalls.
And the options are sobering. Some cities and states are enacting tax hikes to deal with pension issues. Some may cut government services and lay off workers. Some are exploring bankruptcy as an option. And many are hoping for a federal bailout, which is increasingly unlikely given Washington's cost-trimming mood.
The wisest course, one that Cincinnati and Kentucky are following, is to simply tackle the problem head-on. They are looking at reforms to their pension systems - reducing benefits, changing the terms for future employees, tightening rules that have allowed some employees to get far more in pensions than they got in salaries. Understandably, the efforts meet fierce opposition from the public workers whose retirement incomes would be affected.
That task often is complicated by the web of laws and regulations that govern such pension systems. In Cincinnati's case, a lawsuit by retirees challenging changes to their health plan, which the city argues it has the right to make, has added uncertainty. And despite public hearings on the pension mess, the city has yet to persuade residents that the need for reform is urgent.
Cincinnati has to get a grip on its pension system. As we saw with the city's agonizing budget debate last month, the more resources it must devote to shore up such a system, the fewer dollars it has for the services its residents want and need - picking up yard waste and keeping pools and recreation centers open.
On reform, Cincinnati needs to:
Make the reform process as vigorous, honest, inclusive and public as possible.
Provide strong, courageous leadership that's willing to make tough choices and take the political heat for them.
As New York Times columnist Thomas Friedman put it recently: "We are entering an era where to be a leader will mean, on balance, to take things away from people."
The city of Atlanta, whose history of public pension woes has remarkable similarities to Cincinnati's, has been held up as a national model for reform.
Ironically, a Cincinnati native, retired Atlanta Journal Constitution publisher John Mellott, has led the reform effort in Atlanta. In January 2010, he was asked by incoming Mayor Kasim Reed to tackle the city's $1.5 billion pension gap.
Mellott, who previously had overseen pension plans for Cox Newspapers, formed a 15-member study panel of employees, elected officials and business leaders, insisted that all its records and proceedings remain open and transparent, and took a full year studying all the financial details of Atlanta's plan. The final report next month will lay out options but not advocate a particular solution.
That's a job for the city's political leaders. And that takes some courage. In some cases, reform won't produce immediate savings - in fact, the opposite. The proposed Kentucky changes would require cities, counties and the state to pay more into the fund for 10 to 15 years, but they'd save money - and the system - in the longer run.
For those who think, as some have argued in Cincinnati, that all we have to do is wait for a stock-market surge to recover pension-fund investments battered by the recession, Mellott has a message based on his group's deep study of the economic fundamentals behind pension funds: "Hope is not a strategy. Mathematically, you cannot recover from the last decade."
Mellott's advice for Cincinnati: "First of all, have courage. Cincinnati is not alone in this issue.
"Also, process is important. Its high visibility, and the participation of the community in the process, has been vital to Atlanta."
Cincinnati needs a healthy, open debate to produce a healthy pension system that works for everybody.