Another U.S. city mulls bankruptcy due to soaring wages and pensions

[alp227]

By Tim Reid

DESERT HOT SPRINGS, Calif., Nov 12 (Reuters) - A resort town in California warned on Tuesday that it will run out of money by March due to burdensome salary and pension costs and could join other U.S. cities that have recently filed for bankruptcy protection.

A bankruptcy filing by Desert Hot Springs, a city of 26,000 about 110 miles (177 km) east of Los Angeles, would make it the third California city along with San Bernardino and Stockton to seek court protection from creditors.

San Bernardino and Detroit - the biggest U.S. city to seek Chapter 9 protection - are likely to set precedent on whether retirees or Wall Street bondholders suffer the most when a city goes broke.

The problems in Desert Hot Springs came to light last week when a new finance director reviewed the city's records and discovered a $3 million shortfall in its budget of $13.5 million. Amy Aguer, the interim director of finance, did not have details on how the shortfall occurred but said it was the result of higher-than-expected pension and salary costs, especially in the police department, and overly optimistic estimates of revenue.

"It's obvious we can't continue with salaries and pensions that are in the stratosphere, no matter how much love there is for our police department," said Russell Betts, a council member.

full: http://reuters.com/article/2013/11/13/usa-municipality-hot-springs-idINL2N0IY07420131113

See also: Desert Hot Springs explores dozens of options to balance budget (The Desert Sun)

California’s Desert Hot Springs Holds Short of Bankruptcy (Bloomberg News)

[KatyMan]

1. "burdensome salary and pension costs"

It's burdensome to pay people who worked for decades and contributed to the funds to pay them out? To live up to your promises? I wonder if I can tell my mortgage company that my payment is burdensome, and just stop paying yet still live in my house...

[hack89]

2. If cities mismanage their finances they will go bankrupt

They are morally obligated to pay those pension - that doesn't mean they have the money to actually do it. I suspect that the city failed to fully pay its contribution using overly optimistic estimates of investment returns to justify it.

[LooseWilly]

19. I suspect that optimistic projections were only a part of the problem- can you say RDA?

Not surprisingly, a quick search on the city of Desert Hot Springs reveals that they had a ReDevelopment Agency in place.

http://www.cityofdhs.org/RDA_Documents

And, what does an RDA do? It combats "urban blight" (and a city named Desert Hot Springs probably faced a "whole lot of" urban blight... but that's another issue entirely)... by designating zones of the city for redevelopment and then diverting the property tax dollars to build shopping mall infrastructures to draw retail business to town (bribe corporate entities to come and provide mostly minimum wage jobs and provide a boost on sales tax revenue... which is ostensibly "supposed to" offset all the property tax dollars that would otherwise go to the state in order to be pooled and then re-distributed back to local counties and municipalities)... and the RDAs then negotiate with these corporate entities to come up with terms to convince them to set up shop in these shopping centers, built to their specs in some cases.

It is unclear what sorts of tax breaks are further offered to the businesses in an effort to fill the malls.

What do you want to bet that the city needed to provide all those "expensive" city services (workers) largely in order to provide infrastructure and support for these corporate negotiation teams... all in pursuit of some sales tax dollars, while "investing" (squandering?) all those diverted tax dollars into what amounts to corporate subsidies... dollars which otherwise could've been distributed throughout the state?

And, as a corollary, how willing do you suppose a municipality would be to levy a tax rate that would actually support the services expected by these corporate tenants, in the face of the threat of them walking and leaving the RDA holding the bag for all the construction costs of all those shiny shopping mall would-be-corporate-bribes?

As an added bonus, in every case I've seen the RDA board has consisted exactly of the city council... who usually pay themselves a bonus rate for all the RDA meetings... though I haven't bothered with the 5 minutes of effort to confirm that in this particular case.

No, I don't think the public employees who negotiated a contract for their work, and now expect to have the city management & council pay the terms of those contracts... I don't think it is the employees that should be seen as the ones responsible for Desert Hot Springs' ... hot water.

[hack89]

20. The employees are not to blame

That still doesn't mean there is money to give them.

[LooseWilly]

23. Tax those corporate tenants... there's plenty of money there

Gnome sayin'?

[hack89]

25. I doubt a small resort town has a lot of corporate tenants

Besides, wouldn't the typical corporate response be to cut benefits to their own employees to make up for increased taxes? Not sure how that is a net benefit for the town.

[LooseWilly]

27. Walmart, McDonald's, TacoTown, etc... all probably live there somewhere

Corporations don't respond to taxes by cutting benefits to their own employees... they cut benefits to their employees whenever they think they can get away with it in order to reduce "labor costs" and thereby increase the profit ratios on their books... the notion that they do so in response to something as specific as an increased municipal tax is specious at best.

In any case... A) I don't see how these minimum wage sweatshop-like retail outlets could cut the benefits to their employees any more than they already have. B) It will help the town pay the public employees who have been providing services to those same corporate tenants, taking the burden off homeowners and others who would otherwise have to foot the bill for yet another bond to re-structure payments. C) Precious little income taxes from those employees gets to the municipalities... especially considering the fact that most probably make so little that they get EIC refunds and very likely also SNAP and even HUD assistance just to get by. D) If the corporate tenants try to play hardball and clear out... that might open up an opportunity for some small business to open up shop... likely paying better wages to employees and also likely not expecting the same sort of super-favorable tax and services treatment as the big box retail shops expect... and in the process more of the revenues are liable to be spent locally and thereby returned to the community, rather than being diverted to a corporate HQ banking account and diverted to shareholders and CEO bonuses.

All told... I see a pretty sizeable net benefit for the town... if only the managers would run it on something other than a corporate model.

[hack89]

28. So what percentage will you tax them at

And how much will you raise?

[SharonAnn]

29. Exactly! It's the city's failure to set aside moneys for their contracted obligations

that is the problem.

Bad fiscal management.

[beachbum bob]

3. budget messes are every where in the public sector

too many years of abuses of the taxpayers done by politicians and public unions.........unfortunately it brings us here to where we are now.

runaway pension obligations and overburdened taxpayers. Bad mix when you consider the economy and the fact that we have had 10 years of paltry economic and wage growth.

[upaloopa]

9. The reason pension cost rose is because they

we're defined benefit plans. The Great Recession which was not caused by union workers reduced the value of the pension assets just the way 401Ks lost value. Combine that with lower tax revenues because of lower housing value also not caused by union workers reduced the taxable value thus less revenue.
Also people are living longer though that was not planned by the union workers.
So your rant is full of shit! Typical low information voter echo chamber noise.

[LooseWilly]

24. Well, technically... a defined benefit plan's cost can't "rise"...

We should stop just accepting that term when responding to this argument. The costs may have risen as a portion of expenses... it may have risen relative to the revenue streams of the investments meant to fund them... but the cost itself hasn't risen in absolute terms. (Unless there are more retirees... but even then, a defined benefit plan is going to have exactly predictable costs.)

I worry that your phrasing might be taken as an argument against defined benefit plans... and toward 401K style plans - in an effort to pass the costs associated with the vicissitudes of the markets on to the workers (which has its obvious appeal to managers). Reading between the words of your post, I suspect you are not making that argument... just a point that bears bringing up in the discussion.

The argument of "rising costs of pension plans" is really just CYA spin on the part of city managers to re-cast what is actually poor financial planning on their own parts.

In other words, if the city finds itself strapped for cash, it is the administrators and city council who should have their finances impacted... let them take responsibility for their own failures...

[upaloopa]

30. I work for a county government and am a SEIU

member.
I was just stating fact about why a government entity finds it needs to pay more into the retirement system.
The myth is that employees are overpaid and over compensated causing the poor taxpayer who doesn't have those things to pay for government workers' lavish lifestyles.
It is a divide and conquer strategy that works well.
Even some DUers believe the myth.

[Trillo]

4. In some years past, maybe as far as decades

I've read that police-officer retirees often make more money in retirement than they do when they're working. Is that true?

Most folks take an income cut when they retire.

[upaloopa]

10. Why don't you do some research on the subject

rather then post talking points as if you are some innocent bystander.

[Trillo]

13. One of my landlords was a retired cop (probation officer), he also told the same story,

in his case, it was about him, they had made it more lucrative to retire. He told this story to us while he advised us our rent was going up, because they'd cut back his health insurance (that was his story). I can't say when he said this, except it was between the years 1982 and 1998, when we rented his place. An unrelated person, our previous accountant, who had been Sheriff's reserve or something like that, said the same, that they were losing a lot of good people because under the right conditions, presumably a certain number of years, they'd make more money retired versus what they'd make if they kept working. The newspaper articles I'd read often mentioned the retirement plans of the top cop in town.

When you read these stories in the newspapers throughout the 1980s and 90s, and folks you know tell you the same thing, then it's not about talking points. The stories may no longer be true, but I'm pretty sure it was correct some time ago, for folks who are probably still alive and collecting pensions today.

[upaloopa]

15. That has nothing to do with pensions

He took an early retirement.
Governments do that. They pay certain people to retire before their scheduled retirement date. The amount paid is less than the government would have to pay on salary and benefits until the person retires at the scheduled date.
I think you know darn well that people don't retire making more then when they worked.
A few and very few do retire with full pay because they worked for 35 years. For firemen and women it is around 20 years because their job wares their body out.
So people retiring at full pay sometimes come back as consultants so they are making more with retirement and consulting income.
Those people are about 1 in a couple hundred thousand.
Most people retire on less than half of what they made working.
If you don't know that then like I said do some research.
One person you know hardly is equal to all the damage done to people because bull shit like you post becomes what the majority believes which is why you posted it I think.
This idea that people should eak out a living with no help from society is destroying this country by increasing the income gap.
If you truly cared about this country you would do well to examine your positions.

[Trillo]

16. That's not what I read, or was told,

but you go ahead and believe in your fairy tale if it makes you happy.

About the only point you and I do agree upon is that most people make about half in retirement. I said something like that in my first post.

[upaloopa]

17. I am a government worker what I said is true

You can check it out

[Trillo]

18. "Six figure pensions"

http://chicago.cbslocal.com/2013/04/29/2-investigators-state-police-retirees-draw-six-figure-pensions/

2 Investigators: State Police Retirees Draw Six-Figure Pensions
April 29, 2013 9:58 PM

(CBS) — Retire at 50 and collect more than $100,000 a year – that’s the plan for a special group of state workers.

This current article is very similar to the ones I was reading about 20 years ago.

Here's another one:

Padded Pensions Add to New York Fiscal Woes
By MARY WILLIAMS WALSH and AMY SCHOENFELD
Published: May 20, 2010

In Yonkers, more than 100 retired police officers and firefighters are collecting pensions greater than their pay when they were working. One of the youngest, Hugo Tassone, retired at 44 with a base pay of about $74,000 a year. His pension is now $101,333 a year.

http://www.nytimes.com/2010/05/21/business/economy/21pension.html?pagewanted=all&_r=0

[haele]

12. Not under a typical pension system.

And there are work-related disablity benefits that a lot of people think is "retirement". Police and firefighters tend to get a disability suppliment if they retire early due to the wear and tear they get doing their job.

Where pensions really get wiggy is when a pension system is structured follow a rank and file worker into mangement, or if bonus pay for specialty positions are added into the pension calculation. While 80% of the public workforce will never get into management and will retire with a yearly $25K - $35K pension stipend, the 20% who made it into management over a 25 - 30 year career will often see a pension return of six figures because they held the equivilent of a specialist or executive position in a private company.

What really sucks is that somehow, people assume that when the newspapers shout about "Retirement Pension bonanzas", the newspapers are talking about the average worker. Nope, they're usually looking at the "average pension" - of the executives and senior managers, which are usually the equivilent of their private sector counterparts.
What do you think a senior manager at an engineering or insurance firm gets for his or her pension, or how their bonus and stock options work with their pensions?

In 2004, my mother retired as the administrative assistant to the Dean with an additional position as Graduate Studies advisor within that "School of" at a prestegious state university. She was making $57K a year, with 35 years for her standard state employees pension.
She's getting $28K a year for as long as she lives. No COLA. Dad was a 40-year high-school teacher/specialist/coach with a state pension that was paying $35K a year until he died last year.
As his surviver, she is getting half of that until the date he would have turned 80 (4 more years), then it ends (had he survived his stroke and lived into his 90's, it would have continued in full until then).
Lucky for her, his military and Social Security survivor's benefits to her doesn't have an after-death cut-off date, so she currently gets about $1200 a month combined with those, and they have a COLA.

I doubt the median pension (without disability) for a 30-year retired beat cop in Palm Desert is more than $40K a year, all things considered. Unless Palm Desert was particularly generous with their package to try and get more people to hire on.

Haele

[zappaman]

5. Legalize and tax the herb!

[Blue_Tires]

6. "burdensome salary and pension costs" usually means

"We played fast and loose with the money when times were good..."

[ReverendDeuce]

7. All of these pensions were doable...

At the time, the math worked. Then there were years of declining tax revenue due to the gallop-towards-the-bottom mentality of private enterprise. Recession after recession later, they blame the unions. Sigh.

[Starry Messenger]

21. +1

[Logical]

8. Pensions are dangerous for a long term company. A lot of risk. nt

[upaloopa]

11. You know in 50's and 60's just about every worker had

a pension. It was never dangerous for companies who created wealth by making things.
It's when wealth was created my manipulating markets and leveraged buy outs occurred.
We now have the situation where wealth distribution is at an all time imbalance and is perpetuated by statements like yours.

[haele]

14. Nope, a CFO plans for pensions, just as they plan for facilities and depreciation.

Financially, there is little to no risk in a "known" liability that is managed. Even if the company is having trouble, there is no risk in a managed pension fund.
Now it's true that a pension fund is not liquid and requires a dedicated allotment of cash to maintain, and that might be a hardship liability that has a part to play in a potential default or bankruptcy situation.
But the only risk comes in is if the "long-term" company chucks their long-term strategy out the window to chase profits by the quarter, or if the owner(s) decide to use their company as a personal ATM.

Haele

[onethatcares]

22. when a company goes bellyup

and tosses its pensions to the curb, doesn't the government (you and me) pick it up through the government guaranteed pension system or some such entity?

What choice do cities have?

Myself, I think everyone should have a stipend and healthcare at the end of their working lives. Government provided if needed, and/or the company the person worked for was too farking cheap to get one for their long time employees, And while I'm on that,
it shouldn't matter how many companies you've worked for over the years, a base pension should be available to anyone and everyone.

LIKE SOCIAL SECURITY SHOULD BE FOR ALL OF US.

Jeeeez, the first thing Richie rich would say is cut that waste out.

[gopiscrap]

26. How about fucking raising taxes