Wednesday, April 9, 2014

Trying to defuse the pension time bomb



      It hurts to have your pension cut. Trust me on that; I know of what I speak.
     In 2009, when Jim Tyree bought the paper, the deal he offered was: the union loses its right to seniority and takes a pay cut, and the company stops funding our pensions.
     What made the union vote to swallow that bitter pill was the alternative: If we didn’t accept it, Tyree promised, he wouldn’t buy the paper and it would go out of business. The only question was, was he serious?
     After exploring the subject from all angles, the honest answer seemed to be yes. So we took the deal.
     In the past five years, I have had no cause to regret that decision. I’m glad there is a Sun-Times and glad that I work here, and while I am not glad that my pension was frozen five years ago, it’s better than nothing. Should I someday actually get a pension check for any amount, I’ll be glad for that too, not to mention surprised.
     The situation facing city workers is neither so dire nor so clear cut. They don’t risk losing their jobs, not immediately anyway. They aren’t even facing pension cuts — their pensions can’t be cut, by law. The bill passed Tuesday in the Illinois House only scales back future increases in the labor and municipal funds, two of four pension plans the city funds. No matter. From the union perspective, promises were made.
     In an ideal world.
     In the real world, what happened is that Rich Daley gave away the ranch. The parking meter fiasco is small change compared to the pension disaster where, if the city keeps its obligations, Chicago will be hollowed out. The $600 million the city legally must contribute next year looms. Something has to happen, because if it doesn’t, Chicago becomes, in essence, an elaborate pension plan that also puts out fires.
     And then we become Detroit.
     So Mayor Rahm Emanuel is probing, looking for revenue, hoping to pry more money from real estate taxes, the standard mechanism to pay for city pensions.
     As he does, something keeps echoing in my brain — not the most economically savvy brain, I should point out — that Karen Lewis, the president of the Chicago Teachers Union, suggested to me in November. We were talking about schools, but it might as well have been about funding pensions.
     “So raise taxes on the rich guys,” she said. “Do the financial transaction tax. Do something. Why is New York not in the kind of mess, financially? Why is that? You think about it, New York has Wall Street, those guys actually do pay their fair share.”
     The mayor’s financial brain trust points out that while New York does have a financial transactions tax, so many investors fled that now it reimburses them 100 percent.
     While there isn’t any exodus of Chicago companies — the mayor regularly shows off new corporate headquarters — the population is shrinking: 150,000 people lost over the past decade. Does not real estate tax affect that trend, in a bad way? Again, Lewis:
     “We have the CME. We have the Board of Trade. These guys are getting away with highway robbery. Those are the people [Rahm] respects and cares about. Because when you say we have to make hard choices, hard choices are not closing down schools in poor black neighborhoods. That’s not a hard choice. That’s an easy choice. A hard choice is going to the CME and saying you guys are going to have to put in a financial transaction tax. The city needs the money. That’s a very hard discussion. That’s a hard choice, and if you were really a good mayor, that’s where you would go. You would say, ‘Look guys, I know you like every single penny and more and blah blah blah. But guess what? You can’t even spend it all, you can’t spend this money. Let’s do the right thing, make the schools good, c’mon, 10 cents a trade, whatever. You guys aren’t really going to notice that. Let’s do that.’ ”
     I don’t want to go all Occupy Chicago on you, but that made sense to me. If this is a citywide problem, it should have a citywide solution. We won’t solve it on the back of business — nobody is suggesting that. But doesn’t business benefit from cops? From firefighters? From having roads and a nice city, run and maintained by hardworking city employees? Spread the pain around. At least appear to spread the pain around.
     Because there is a lot of pain to spread: $32 billion in unfunded pension obligations. The city’s entire operating budget for eight years.
     If it were an atomic bomb sitting in the middle of Daley Plaza, with one of those big red LED readouts ticking down the seconds, we’d figure something out. Quickly.

12 comments:

  1. Public pensions must end & all government employees put on Social Security.
    Not only will it cost the taxpayers less, but it will put an end to lifetime employment with the government.
    Instead, if an employee isn't any good, if they get fired, their Social Security money isn't lost as pension credits, other than what they themselves put in aren't lost.

    We can't afford you any more!
    Because of that, when someone is an incompetent employee in one dept., they get a transfer to another one so they keep their pension building up & up, ultimately triple that of Social Security, but every penny of it came out of the taxpayers, none of it from the employee, as their pay also comes from us!

    So give them a choice, agree to liquidation of the pension plans or half of every department will be laid off! And carry through on that threat!

    ReplyDelete
    Replies
    1. About the flood article: no it isn't just Americans that ignore problems.

      Delete
    2. I'm usually pro Union but the city related ones area a scalpel and unrealistic.

      Delete
    3. That's not what unions were suppose to be about, originally.

      Delete
  2. Great piece, Mr. Steinberg. But as this progresses please don't suggest that the state legislation is any model for the city by saying it fixed the state pensions, as you did once before. The unfunded state liability was cut by less than 20%. Your old media colleagues continue to underestimate how bad this is, which is part of our problem.

    ReplyDelete
  3. Easy to say "Rich Daly gave away the ranch," but he and all the other pols, of both parties, did it on our behalf. Anybody remember what happened to Dawn Clark Netch's political aspirationas when she tried to run on the notion of raising taxes to cover expenses.

    Illinois taxes are indeed regressive and property taxes, particularly in gentrifying neigborhoods, can meet that definition, but I think the notion that people will sell out and leave in large numbers because of them is exaggerated. Where will they go. I pay taxes on property in Wisconsin, which has been in the news because of GOP tax-cutting. Move there if you want to back the Packers or root for the Badgers, Brewers and Bucks, but don't expect any savings at tax time.

    ReplyDelete
  4. Years ago pension benefits were negotiated that required everything to go just right. Investment returns, employer contribution and employee mortality had to happen as expected in order for the benefits to be paid. The fact is none of those things came to be. The first decade of the 21st century had two market meltdowns, governments have regularly short-funded the plans and retirees are living longer than expected. Politicians and union leaders share responsibility for agreeing to a pension plan that had such a small probability of reaching its targets.

    ReplyDelete
  5. I think the financial transaction tax or other tax increases could be sold to the the business community with a specific major concession that Karen Lewis and others want to ignore. The CPS and overall pension operations needs to be run similar to a private business (i.e. administrative streamlining, merit payroll and performance accountability). In other words, the CPS and CTU need to stop pointing fingers at each other and actually work together to get results.

    ReplyDelete
  6. Let's remember what "Become Detroit" really means: it doesn't mean the whole metro area becomes a slum, it means the *city* becomes a slum and the Metro area continues with the very substantial amount of business in the burbs. How many tens of millions of dollars will CBOT pay before they say "you know, we could move to Rosemont and not lose that much business." You're betting an awful lot on the power of inertia here.

    ReplyDelete
  7. The Indiana state line is within eyesight. Two airports will take you out of town forever, when the CTA isn't crashing a train into one. Long live the pensioners! May the workers work just one day longer until they drop dead while the pensioners laugh.

    ReplyDelete
  8. What's bad is that the recent pension bills are portrayed by the unions as draconian cuts, whereas they barely touched the benefit. The unions' talk of shared sacrifice never extends to them. The reporting often favors the union with misleading figures like "the average pension" (deceptively low, because it includes all pensions, even those of short-timers; the figure for career retirees should always accompany it) and portrayals of pensioners living in supposed poverty. Recently, the Tribune described a 61-year-old who has been collecting a $30,000 pension for 10 years and who claimed, with no clarification in the article, that the city never put anything into her pension. First of all, if you retire at 51, you should not expect to be living the high life. Second, by now, in addition to whatever the city put in the first place, which it did even if it was short of what it should have, the city is paying most if not all of her pension, as well as the $900 cost of living increase she gets each year. Just accurately quoting someone does not equal accurate reporting; ridiculously untrue claims should be clarified.
    Also love when the union says not getting Social Security. The pension benefit, even as "cut," is WAY better than Social Security, with a lower retirement age. Most of us would love to trade.

    ReplyDelete

Comments are moderated, and posted at the discretion of the proprietor.