On 8/6/2013 Candidate for St. Petersburg City Council Dr. McKalip, Founder of this Blog, invited the city workers to an open forum to discuss their underfunded pension plans. The workers were invited by emails to their city email addresses. Today, Dr. McKalip is mailing the following summary of his presentation to the workers. The Power Point with Graphics and Facts Presented to City Workers 8/6/2013 is available for download.
My intention is to inform the city workers that their retirement benefits are not secure. It is also to inform the voters that real change is needed to avoid bankruptcy for our city that will lead to massive service cuts before all is said and done..as occurred in Detroit. Dr. McKalip’s campaign website is located at www.McKalipForCityCouncil.com. (Link to larger version of image to left)
Message to city workers on 8/8/13
“It is a settlement about which no government officials associated with Central Falls should be proud…In an example of abject irresponsibility on the part of its elected officials, its pension plans were persistently and habitually underfunded for a decade or more.” Lawyer for Central Falls, Rhode Island Retirees who lost over half of their pension benefits upon City bankruptcy.
Thanks To the City employees who came to the open forum I sponsored on the failure of the city government to fund your retirement benefits and the danger that poses to workers and the city. For those who couldn’t make it, I would like to provide a summary of the key points from the forum.
Here is the key message:
Your retirement benefits are not safe, the city could fund your retirement plans but wont and your Union leaders are misleading you by telling you to elect the same types of politicians that will perpetuate this problem. Your elected officials and benefits managers are misleading you about the safety of your benefits and the facts. There is a better way forward with the policies I propose.
- Your retirement benefits are not safe.
- In 5-10 years it is likely the city will be unable to pay the retirement health and pension benefits they are promising and will face bankruptcy.
- City Staff and Politicians are misleading you and can’t be trusted on this matter.
- Your Union leaders are misleading you and can’t be trusted on this matter.
- Your pension investments have made $300 million LESS than city Actuaries predicted since 2008. The city admits to a $325 million underfunding of your pensions but it is closer to $625 million underfunded!
- Your retiree health benefits have zero dollars saved are 177 million in debt.
- Active city workers earn less salary every year than retired workers on average.
- There are fewer active workers supporting a growing number of retirees.
- Jobs and vital city services are and will be further cannibalized to pay for the retiree benefits
- You should receive raises and other benefits to choose a more secure and sustainable retirement package
- You and middle career city workers will be sacrificed to protect the retirement benefits of older and better connected city workers.
Highlights from St. Pete City Council Candidate Dr. McKalip’s St. Pete City Worker employee forum 8/6/2013.
- I am running for City Council because I want to focus city spending on the core services of government: police, fire, roads, utilities and parks.
- I don’t want money spent on extravagant projects (like the Lens, or subsidies to big businesses like the Rays or SRI) when we don’t even meet our basic obligations to the city and its employees – like funding the retirement benefits.
- There are no other candidates willing to work on a plan to fund your retirement plans.
- Your union leaders are misleading you by supporting the same set of politicians who will continue to underfund your benefits. You should ignore them and work for candidates that want to fund your pensions first.
- Your own Florida Public Service Union (SEIU) representative at the event opposed moving $60 million into your pension funds from excess reserves – citing reasons that are not based in reality. He also is a member of the “People’s Budget Review” that wants to spend surplus reserves on more feel-good social projects instead of core city services and city employees.
- Your city staff is misleading you with happy talk about how your retirement benefits are “like a mortgage” and will be paid off when the time comes. I have never seen a successful mortgage where we make no payments to the principle and no down payment – like the $177 million UNFUNDED retirement health benefits that has ZERO dollars saved.
- The City staff is misleading you by talking about how “actuaries” are telling them the plan is safe, when their own data shows the plan is not safe (see “facts” below).
- Your total unfunded liability for pensions and retirement health benefits is $325 million. When the $300 million of investment shortfalls is added in the current shortfall is closer to $625 million!
- The city has saved and EXTRA $80 million in reserves BEYOND it’s legal requirement for reserves.
- $60 million of the excess reserves should be immediately moved into the pension fund to start filling the whole and funding the shortfalls. No other candidate can be done and it is absolutely possible if the city simply moves the money from one bank account to another – Yours!
- The city should take $3 million out of excess reserves and use it for raises for employees now.
- The city should provide $10 million in annual raises if employees agree to certain changes in the retirement system that will make the pension and retirement benefits sustainable and secure.
- Your own Florida Public Service union (SEIU) rep only supports $3 million in raises, not $10 million I support.
- The city should offer incentives for employees to choose a more sustainable and more secure retirement plan that will be there for them when they retire. These incentives include pay raises and better treatment of employees funds and freedom and will be better explained below.
Here are some facts that were presented
- Recent City bankruptcies: Vallejo, CA, Stockton, CA, San Bernadino, CA, Central Falls, RI, Jefferson County, AL, Boise County, Idaho, Harrisburg, PA, DETROIT, MI.
- Retiree attorneys cited UNFUNDED PENSION plans as a major reason for the bankruptcies and the problems retired workers were facing.
- After bankruptcy of Central Falls, RI, the pensioners received a 55% cut in pension benefits. Their attorney said this: “It is a settlement about which no government officials associated with Central Falls should be proud,” said Matt McGowan, the lawyer who represents retirees. “In an example of abject irresponsibility on the part of its elected officials, its pension plans were persistently and habitually underfunded for a decade or more.”
- The city has chronically underfunded the pension plans and at the last audit had only funded them at 77.7% for general employees, 83.4% for Fire and 83.7% for police and 81.3% overall. There is a $142 million pension shortfall right now.
- Even when the city had the highest property tax collection in history ($103 million in 2007 vs $55 million in 2001), the city STILL didn’t fund pension plans fully with a $60 million shortfall then.
- City is taxing and spending at record levels, just not on your pension funds or core services.
- In 2011 the city spent the most in history at $485 million, compared to $330 million in 2001.
- In 2012 the city took in $451 million per year in taxes and fees compared to 2001 at $370 million
- The city has a $177 million COMPLETELY unfunded retiree health plan with no plan to pay for it except to raise taxes and cannibalize other city jobs and city services.
- Lessons from Vallejo’s Bankruptcy After bankruptcy in Vallejo California the following things happened and the pension fund problems is still unfunded. Junior and middle career officers lost their jobs to support senior and better connected employees. City jobs and programs were cannibalized to pay retirement benefits for those no longer working.
- Sworn police from 155 to 90
- Firefighters from 122 to 70 with three fire station closures
- Deep cuts in spending on streets, building maintenance and other programs
- “…up to $100 million in health care obligations were removed when the city cut benefits for retirees to $300 per month, down from $1,500 in some cases.”
- The Mayor said this: “It is painful to say to people who supported you in an election that I have to cut your salaries. That’s hard,” said Mayor Osby Davis, who has held that seat since 2007.
- Retiree Health benefits take more from the general fund every year. In 2012, the city paid out $42 million for retired worker health benefits compared to about $10 million in 2008. The city cannot bear paying out an extra $30 million per year for retiree health benefits without cutting jobs, cutting services or engaging in some responsible reform.
- Retiree pension benefits take more from the general fund every year. In 2012, the city paid out $52 million to the pension plan from the general fund, compared to $36 million a year in 2006. This is not sustainable and will lead to service cuts or layoffs without responsible reform.
- In 2011, retired city workers receive bigger payouts than average active city workers! The total amount being paid out every year – to retired workers only – is $52,238,355. The total annual payroll for the city in 2011 was $101 million. The city is thus paying out just over half as much in pension benefits to 1,131 retired workers as it pays to its 3100 full-time and part-time workers in 2011. The average payout to active full time and part time workers (salary only) was $32,600 while retired workers received $46,187 per year. These salaries are in addition to health and other benefits (The city spent over $40 million on health benefits for retired workers in 2011)! Thus the retired worker is earning more every year than the current full time city worker – about $14,000 more on average!
- Fewer active workers are supporting more retired workers (2011 data last available).
- About 47% of people in general workers retirement plan are not working. General workers have 2,975 in plan with 1,593 working and 1,145 receiving benefits and others not receiving benefits.
- About 66% of Fire Pension plans members are not working. The Fire department has 691 members in pension plan with only 236 actively working and 445 retired and receiving benefits.
- The police department has 57% of pension plan members not working. The police deparment has 1094 members in the pension plan with only 473 working.
- The aging workforce means that there will be even more retired workers in 5-10 years right when the pension and retirement plans will be losing most of their funds and will be unable to deliver.
- The city is misleading you regarding the “Actuaries” in charge of analyzing the pensions and how good the investment returns are.
- The actuaries and city assume they will earn 7.75-8% COMPOUNDED Interest EVERY YEAR on your pension benefits. This is a pie and the sky promise.
- The actuaries OWN report admits that the EXPECTED “(actuarial)” value is not as good as the true market value since 2008 for each fund.
- The city’s pension funds have UNDERPERFORMED what was EXPECTED since 2008 by $105.5 million for the general employees, $61.9 million for Fire and $132.4 million for Police.
- In other word your city has ADVERTISED an extra $300 million in investment returns than reality actually delivered!
- These are the people that your city want you to trust with your retirement money. These are the people that tell you they can do a better job investing your retirement money than you can.
- St. Petersburg is on same track as other cities that went bankrupt. The current behavior of the City of St. Petersburg is the same as past behavior of other cities like Vallejo California that went bankrupt. Here is how the Huffington Post reported on Vallejo’s mismanagement in 2012. The same thing can be said about the underfunded pension plans and strains on the general funds in St. Petersburg now.
- “City councils continued approving raises and benefits for workers, ignoring warnings from citizen oversight commissions. Police and fire officials could retire at 50 with 90% of their final year’s salary. After one year of service, public employees could get health care coverage for life, and so could their families. Starting in 2005, the city began spending $3 million to $4 million a year more than it was taking in, draining its reserve fund.”
- City is deficit spending but still needlessly stashing excess money in reserves. The city is engaging in deficit spending now, spending $51.9 million more than it took in over the last two years. However, they have moved that extra spending into reserve funds, rather than funding your pension plans. Here is the reserve fund profile and it is part of the source of the solution in the short term until a long term fix can occur. The city has an EXCESS $80 million in reserves – above and beyond what it legally requires of itself for reserves.
A better way forward for city workers and taxpayers –avoiding bankruptcy.
1. SHORT TERM
- Spend first dollars earned by city on funding pension and retirement health benefits. Cut things that are not core services like $50 million on Lens, subsidies to the Rays and SRI and other big corporations and wasteful feel-good projections for politicians. RE-evaluate top-heavy administrations to redirect funds to the actual workers.
- Take $60 million from the $80 million surplus reserves and start funding the $325 million shortfall in your pension plans which is really closer to $625 million.
- Provide $3 million in raises annually to city workers now.
- Provide up to $10 million in raises annually if workers agree to long term pension reform that provides them a more secure retirement fund.
2. Long Term – Incentives to transition over 5-10 years to defined contribution from defined benefit plans.
A. Provide incentives to employees to participate in reform of the retirement system. Here are some incentives to ensure a partnership between city workers and the management of the city as well as the taxpayers.
i. Personally owned pension plan. Not owned by a city that can’t pay your benefits and is mismanaging your money.
ii. Pay Raise – you deserve to be paid more if you are willing to own your own retirement plan and run it.
iii. Earlier Vestment – you deserve to be eligible to receive benefits earlier if you
iv. Portable benefits – take them to any job you want, don’t be locked into a job you may not want.
v. More security for Younger workers. Change last-in, First out so younger workers who adopt a better plan have a more secure job.vi. Free financial planning – to help workers learn how to protect their money from stock market downturns.
B. In exchange for Adoption of INCENTIVES – then workers can choose the following
i. Use retirement contribution to buy an insurance based annuity that would pay out at retirement
ii. Adopt a 401K style plan
iii. Phase out defined benefit plans
iv. Encourage use of health savings accounts and high deductible health plans. They would put cash in workers pocket for every day medical expenses and pay 100% of all health costs above high dollar amounts that happen rarely in life. These plans are a far better value for every body. Dr. McKalip would recruit medical colleagues to offer deep cash discounts to city workers with these plans and make sure city workers are trained how to get the most bang for the buck out of the plan and the most time with their doctor.