Could St. Petersburg be the Next Bankrupt American City?

Tonight, the city of Stockton, California is considering declaring bankruptcy as escalating pension costs outstrip the cost of the services the city residents expect and deserve.  This trend has been increasing as the empty political promises of the past come home to roost.  In the past, local politicians on City Councils, School Boards, County Commissions and the like promised big payouts to government employees in the form of retirement benefits.  The argument always included the allusion to “lower pay” for a government job should be offset by a big pension when they are done working (it turns out the modern government worker makes more than private sector workers).  In exchange for these government pensions, the unions would turn out voters and endorse the politicians who handed out the patronage money.  As the pension plans begin going bust all over the country, the City of St. Petersburg is no exception to this threat.


AnnualStpetepensionexpenseFigure 1 – Annual Pension Payouts are increasing every year for ST. Petersburg. A motivating factor behind tax increases supported by the city.


 The City of St. Petersburg has underfunded pension plans, unrealistic investment expectations, and an increasing annual payout obligation to retirees.  The City of St. Petersburg allows its workers to retire at age 50 (fire), 55 (police) and 60 (general workers). They must work only 30 years and can retire at 100% of their income for the rest of their life.  That certainly far outstrips the retirement benefits that average taxpaying citizens and residents of St. Petersburg experience. In 2011 the city paid out about $52 million to retired workers and the number is increasing every year (figure1).  It also turns out that the city’s obligations for retirement benefits are not fully funded.  In 2011, the city owed a total of $907,843,938.00 for 1131 retired workers.  That is about $802,700 over the lifetime of a currently retired worker!  The total amount in the fund was $767,901,099.00.  The total funding percentage is thus 84.57% for all three pension funds (General employee, fire and police – figure2).  The total percentage of funding has fallen over the last two years (figure3).  To add insult to injury, the city is assuming it will earn a 7.75-8% per year return on its pension benefits.  It also allows a 1.5% cost of living adjustment every year for retirees. (continued below…)


pensionfundpercentages2011

Fund Balance

Fund Obligation

Percentage

General

$278,691,684

$345,049,252

80.77%

Police

$306,957,033

$347,627,201

88.30%

Fire

$182,152,382

$215,167,485

84.66%

Total

$767,801,099

$907,843,938

84.57%

 Figure 2 – General Employee, Firefighter and Police Pension Funds are underfunded by about $140 million.

annualstpetepensionfundingpercentageFigure 3 – Pension trust funds are increasingly underfunded every year in St. Petersburg.


The citizens of St. Petersburg are on the hook for a massive bill to pay the unrealistic benefits of government workers.  This likely explains the deep interest in raising taxes or fire fees by St. Petersburg Politicians. Rather than address these out of control costs, they would simply further hurt the economy with higher taxes. Government workers are NOT the ones to blame primarily. The blame falls on the shoulders of years of politicians who have kicked this can down the road all in the name of getting re-elected.  The city needs to immediately convert to defined contribution plans for new hires and work on re-negotiating contracts to convert current plans owned by the governments to plans owned by individual workers. The workers should be offered the opportunity to take a lump sum payout at a lower value than the over $800,000 amount promised for their retirement. It is clear that those amounts can’t be paid for and it is unfair to tell courageous firefighters and police officers and standard government workers that they will have a pension that can’t exist in reality in the future. The unions need to step up to the plate to prevent an economic catastrophe for the city. There are no amount of taxes that can be raised to solve this problem. It is time for some tough but realistic decisions before the City of St. Petersburg also has to declare bankruptcy.

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