Wednesday, May 2, 2012

Cities, Colleges and Funding Public Sector Retirement Benefits

Providence's Pension Shakedown is an interesting story about taking money from non-profit entities to fund pension benefits for city employees. Here's what it says:

"Town-and-gown relations in Providence, R.I., are growing increasingly strained over—wait for it—pensions. Mayor Angel Taveras is demanding that Brown University fork over $7 million to help cover the city's $22.5 million budget deficit, which is being driven mainly by pension and retiree health costs. The university doesn't think that's fair.

"I don't think it's reasonable for the city, having made mistakes and having become insolvent because of those mistakes, to turn to institutions that are successful and to demand that they pay for those mistakes," Brown President Ruth Simmons told the university's undergraduate council of students.
Non-profits are exempt from paying local property taxes, but in 2003 they agreed to contribute $48 million to the city's coffers over the next two decades to cover its rising pension costs. Brown alone has been voluntarily contributing $2.5 million a year and has agreed to pay an additional $2 million, but the city wants at least $4 million more.

If Brown doesn't concede to Mayor Taveras's demands, state House Speaker Gordon Fox warns that Rhode Island will pass legislation requiring nonprofits to contribute 25% of what they would owe the city were they taxed as businesses. For Brown, that would amount to between $7 million and $9.5 million a year.

Mayor Taveras says he's only asking the university to pay its fair share, and it's true that the college benefits from public safety services just like the rest of the city's taxpayers and businesses. But it's also true that the city wouldn't be in this bind if it weren't for the generous benefits that local politicians promised to workers decades ago and are now just getting around to reining in.

The city's pension fund is only 32% funded. Retirement costs would have driven Providence into Chapter 9 bankruptcy this summer had the city council not modified benefits. Last night the council voted to cap pension benefits at $78,000 per year and suspend retirees' annual cost-of-living increases, which had been averaging between 5% and 6%. All told, the changes will save the city $19 million this year and reduce its unfunded pension liability by a quarter. Even so, the city will have to spend a third of its property tax revenue this year—about $100 million—on retiree benefits.

The lesson in all this is that the costs of unsustainable entitlement programs eventually will hit everyone, even the traditionally tax exempt and especially the most successful."

Discussion and Analysis

Providence needs money to pay its city retirees' promised pension benefits.

It believes Brown University should "voluntarily" agree to increase its current contributions to the city to help the city meet its unfunded pension obligations.

Evidently Providence city officials don't believe the citizens will want to pay more taxes to fund the promised benefits.

Why Brown? Well, the city leaders believe that Brown has enough money for its needs, so the city wants to get more of it to pay its unfunded retiree benefits.

To me this ridiculous argument by the city smacks of why some politicians argue that the rich should pay more taxes. When government overspends, stick it to those who have money. When is there ever enough money to satisfy the spendthrift ways of elected officials who have access to unlimited OPM? Never.

So the pols don't want to make make choices which either the beneficiaries or taxpayers at large won't like.

Thus, they do everything possible to get more from from the few who can come up with the money. But there's never enough.  They'll always "need" more to do all their "good" work for We the People.

It's nothing more than the Robin Hood approach at work in the public domain.

Or if you prefer, it's a simple fish where the fish are story.

Summing Up

If Providence is going after non-profit entities for the funds needed, why not also ask the churches, United Way organizations and others to contribute funds to pay city employees' retiree benefits?  They are in the same status as Brown University.

Here's a related question: Has anyone considered the possibility that the college's money could be better used by Brown to reduce the cost of college attendance instead of paying city workers?

Since we can't spend the same dollars twice, who is in the best position to decide how best to spend the money we do have? Or more correctly, who should decide how to spend the money Brown has and the money the city of Providence doesn't have?

And do the fat cats that contribute to Brown's healthy endowment fund expect their money to be used for the college or would they mind if the city took some for its retiree pension obligations?

And if the fat cats would mind, would their future contributions be negatively impacted if the city helps itself to their donated funds for the benefit of Brown and its constituents?

In other words, what takes priority, MOM or OPM thinking?

Providence or Brown?

I guess that depends on where you sit.

I'm with MOM, Brown and its donors.

And that doesn't mean I'm against the city retirees.

Let the taxpayers and their elected city officials decide how to deal with that one.

It's their money and their city, too.

Thanks. Bob.