Friday, December 14, 2012

Straight Talk on Public Sector Pensions from a "Fat Cat Democrat Billionaire" and a Democratic State Treasurer ... For Them It's All About Fact Based Economics and Not Ideology

The public sector pension funding issue is the proverbial elephant in the room that hardly anybody wants to acknowledge, let alone do anything about.

After all, the issue of public-employee pensions doesn't exactly make an exciting topic of conversation for most people. In fact, unless we're directly involved and at least somewhat knowledgeable about the situation, for most taxpayers the topic is about as interesting as watching paint dry.

But like most 'boring' problems, this public sector retirement underfunding issue won't go away all by itself. And pension affordability has become for many states the biggest elephant in the room today. It simply can't be ignored by the politicians any longer.

Despite this reality, and since the government knows best gang and their allies the public sector union leaders created this enormous underfunded financial problem for taxpayers under the cover of darkness and secrecy, most of our 'public servants' are still hard at work trying to ignore or at least not tackle the problem directly.

Nevertheless, the unalterable fact is that there's not nearly enough money available to have a snowball's chance in hell of solving the problem without severe changes in what's been promised in retirement benefits to public sector employees across the nation.

And here's where things are beginning to get interesting. Very interesting, in fact. Two prominent Democrats are stirring the pot and reality is entering the public discussion, albeit much to the dismay of public sector union officials. And since truth telling and reality seeking are precursors to solving most problems, there's hope on the horizon.

Who are these truth tellers without an ax to grind who are trying to shed some much needed light on this pension fund fiasco in an objective and dispassionate manner? Well, one is a Texas Democrat, and he's a real live fat cat billionaire at that. And a fact based objective one, too.

And making our story even more interesting is that the state of Rhode Island's Treasurer is a Democrat who has led the movement for necessary changes to that state's public-employee retirement plans while catching all kinds of flak from the unions involved. She's objective and, like her Texas ally, takes a fact based approach as well.

This dynamic Democratic duo from Texas and Rhode Island are receiving lots of opposition from public sector union leaders, of course, but the public-employee pension reform movement is clearly underway and a model is in place in Rhode Island which can be used for nationwide implementation of public sector pension reform.

Small State Gets Big Pension Push has the details:

"Rhode Island's rollback of public-employee retirement benefits has turned the small state into a national battleground over pensions.

But little known is that a key player in the campaign to curtail pension costs in Rhode Island was financed, in large part, by a Houston billionaire who sees the state as an opening salvo in a quest to transform retirement systems nationwide.

John Arnold, a 38-year-old former Enron Corp. natural-gas trader who later founded his own hedge fund, and his wife, Laura, were major donors to EngageRI, a group led by local business leaders that pushed for the pension changes.

The Arnolds made contributions to EngageRI in the six figures but totaling "less than half a million dollars," said a spokesman for the couple.

That would account for a sizable chunk of EngageRI's spending last year. The group spent about $740,000 on lobbying, polling and running advertisements in the face of fierce opposition from public-sector unions to the pension changes, a spokesman for the group said. . . .

Rhode Island is one of about 25 cities and states where the Arnolds, either through their foundation or political-advocacy group, have stepped into the pension fray.

Over the past two years, the Arnold Foundation spent more than $7 million on pension-related efforts and is expanding its effort nationally, according to Josh McGee, vice president of public accountability for the foundation.

Mr. Arnold in an interview said he views the issue of rising pension costs "through an economic lens," not an ideological one.

I think government often is shortsighted,'' Mr. Arnold said. "It is often concerned with plugging the dam rather than coming up with a long-term solution."

Nearly every state in the U.S. has enacted some form of pension changes in the past four years, ranging from increasing contributions from workers to more-severe moves, such as Rhode Island's decisions to suspend cost of living raises until the pension plan is financially healthy and shifting workers into a system that combines a traditional pension with a 401(k)-style account.

Officials seeking to overhaul pension systems across the country are tangling with a powerful, well-heeled opponent: public-sector unions. In Wisconsin, officials who sought to curb the unions' collective bargaining abilities drew support from backers aligned with Republicans.

By contrast, the Arnolds, who their spokesman called "independent-minded Democrats," contributed to President Barack Obama's campaigns in 2008 and 2012.

The Arnolds said they have no financial interest in the pension issue. . . .

The Arnolds provided money and support to convince residents of San Diego and San Jose, Calif., to reduce city pension costs in votes earlier this year. Their foundation currently is working on pension issues in Kentucky, Montana, Illinois and Arizona, providing everything from actuarial services to financial and legal advice.

In Rhode Island, the Arnolds were impressed by state Treasurer Gina Raimondo, a Democrat, who spearheaded the pension changes. Ms. Raimondo has said the retirement system was woefully underfunded and pension costs threatened to crowd out spending for state services. . . .

The Rhode Island affiliate of the American Federation of State, County and Municipal Employees has sued the state in Rhode Island Superior Court, saying the pension changes violated public workers' contract rights. The national arm of the large public employees union has assured the local affiliate that it will have adequate resources to pursue its lawsuit, a union official said.

Afscme officials say Ms. Raimondo's alliance with the Arnolds shows she is out of step with the interests of working-class Rhode Islanders. "You know that old saying, which side are you on?'' said Steve Kreisberg head of collective bargaining for Afscme. "Gina Raimondo has made it very clear she is on the side of the investor class."

In response, a spokeswoman for Ms. Raimondo said: "The Rhode Island Retirement Security Act of 2011 preserves the defined benefit pension, guarantees retirement security for valuable public employees and does it in a way that is fiscally sustainable over the long term."

Mr. Kreisberg said Rhode Island workers have been made to bear the biggest burden of the pension overhaul. He said the state should have also raised taxes on corporations or wealthy residents to help defray some of the pension costs."

Summing Up

The guaranteed pension benefit funding shortfall for public-employee pensions stands in sharp contrast to the growing trend for fully funded but unguaranteed 401(k) plans which are now the norm in the private sector.

Adding to the public sector pension underfunding issues are early age retirements with full benefits and automatic annual cost of living adjustments for pension recipients as well. These are very costly and haven't been adequately funded over the years.

In my view, union leaders are wrong for politicizing this issue as they have put themselves in the position of now trying to defend the indefensible.

And by indefensible I mean simply this --- why should public employees enjoy much more costly taxpayer supported retirement benefits than received by those very taxpayers who are required to pay for them? It makes no sense. 

And since the union leaders were responsible for the current underfunded public sector pension dilemma, along with complicit government negotiators, of course, they should decide now to be part of the solution and not remain as the biggest part of the problem.

In other words, they should try to find a way to help their members while not stiffing taxpayers.

Besides, aren't politicians and union leaders supposed to help solve problems and not create or make them worse?

Thanks. Bob.

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