Tuesday, January 27, 2009

An Unexplored City "What-If-Scenario"

The complicated police fire pension issue, with its attached 1-cent sales tax solution, is almost entirely based upon projected scenarios which are based almost entirely on projected assumptions, for instance:

What if the pension sales tax passes?

a. The City of Springfield projects they'll get a return in sales tax revenue for the pension fund of $40 million annually, minus the state's 1 percent handling fee, again, projected at $400,000 if based on the projected $40 million annual revenue they assume the state will collect on behalf of the City under the sales tax. (Just try to keep up ;)

b. The City of Springfield projects they will be able to restore all past cuts to City services and not be "forced" to make drastic cuts to City services in the next fiscal budget. In other words, the City projects everything will be right with the world if the voters approve the sales tax initiative and they won't have to cut services to the public or do the hard work of trying to find cuts in the City government to make a full recommended actuarial contribution in the next fiscal year, a full recommended actuarial contribution which, in fact, they are not required by law to make in the first place (but, we've discussed that in the past, here, no sense rehashing it again).

What if the pension sales tax doesn't pass?

a. The City Manager is, more or less, promising Joe and Josephine Q. Public that they'll cut your services, even though not legislatively required to do so. If you think the public swimming pools being closed a couple of extra days last summer was bad, wait till they start removing the PAR and COP officers from your neighborhood. Chances are, you wouldn't allow your children to walk to the public swimming pool even if they were open 24 hours a day after your neighborhood's police presence further plummets.

b. The City projects the police and fire pension system will languish and the City will never, ever be able to catch up because, according to the City and it's Council, the only way to really address it is by taxing the public.

Now, let's look at the case of a City Councilwoman's quote which was recently published in the daily paper:

"Politically, it wouldn't make sense for those employees to continue to contribute when the city doesn't have to (contribute)."

Rushefsky's comment was made when and if, as I suspect, during the course of an October 21 luncheon meeting, discussions of a number of "what-if" scenarios arose as a result of a presentation offered by two different Milliman actuaries. (See CFP, November 19 issue, page 2).

What I wanted to point out was, during the course of that October 21 Council luncheon meeting, there were several discussions which took place. I failed to write about one projected scenario in the November 19 issue of the Community Free Press (because, it wasn't my focus at the time) and to my knowledge, Wes Johnson of the News-Leader never wrote about it either.

As earlier established, just about everything the City is discussing is in terms of "ifs" or "if nots" in regards to the pension sales tax's passage or failure. Since, at last night's Council meeting, the City Council was discussing the potential of moving new hires and possibly Tier 2 police and fire employees into the LAGERS system, should the pension sales tax be approved February 3, the October 21 luncheon meeting becomes more relevant. The Rushefsky quote was a part of a broader discussion. I think we shouldn't leave the Rushefsky quote flopping like a fish on the table of condemnation without the water of context.

Milliman actuaries were projecting and predicting a surplus in the pension system at certain points in the projected future, if the sales tax initiative passed.

Rushefsky's comment came about during a discussion of whether the City could cease contributing to the pension system after it reached surplus funding. Rushefsky, I felt, made a good point. If the surplus in the fund was so large and was growing larger and larger as the Tier 1 retirees decreased in number, leaving only some Tier 2 employees, it would seem as moot for the police and fire employees to continue to throw their pennies into the fund as it would for the City to continue to contribute. "Politically," as Rushefsky phrased it, it would seem unwise to release the City from their responsibility while continuing to demand the pension beneficiaries be bound to a similarly, unnecessary responsibility.

The discussions didn't end there however, and bearing in mind this is another one of those projected, assumed, what-if/what-if-not-scenarios everyone has been hanging their hats upon in the early days of a new City Manager's reign, here is that other scenario that never found voice outside that room that day and which I don't believe any reporter has exposed:

Someone asked, what would become of the money left in the old pension system fund after the last Tier 1 retiree has died and if new hires were put in LAGERS and the Tier 2 employees had elected to move into LAGERS?

City attorney Dan Wichmer said it could be written up somehow that the City would become the inheriter of the system's left over funds when it had served it's purpose and the last beneficiary of the plan was gone.

In this what-if-scenario, based on similar projections and assumptions the City cites when they ask the public to weigh their pension sales tax decision (or actuarial assumptions and projections delivered to the City Council October 21, 2008 ):

If the citizens of Springfield pass this 1-cent sales tax on February 3 and if it reaches a level of funding between 90 and 100 percent (causing the projected future surplus in the fund), and if new hires and Tier 2 police and fire employees agree to move to the LAGERS retirement system, when the last Tier 1 police or fire retiree dies, the City could stand to inherit the remains of a pension system fund with projected future assets worth an assumed value of between $8.8 and about $500 million.*

Cha-ching!!! < Click me

*And while we're what-iffin, the projected assumed value would be effected by whether the City and employees continued to contribute into the fund after it reached a surplus level.



tom said...

WELCOME ABOARD the follow the money train

tom said...

Another year older and definitely wiser

Springfieldian said...

Thanks for the great stuff regarding the tax. And thanks for everything you do. Happy BIG BIRTHDAY.

CharityAngel said...

Happy Birthday!

Cracker Head said...

1,2,3 Go !
Happy Happy Birthday. Happy . Happy Birthday. Thats good.
LOve yoouuuuuuua A Big'en !
Your a Good'en!
Larry yoouuuuuuua A hubby !

Jackie Melton said...

Oh, geesh.

Thank you to all you b'day well wishers. I see somebody had a big mouth. ;)

Anonymous said...

Another great job of doing the research and asking the right questions. My assumption has always been that the earnings from the investment of the Pension Fund assets would not be adequate to pay the benefits and expenses. This implies that if the Tier I Pension Plan is 100% funded that only Tier I participants would need to continue contributing and that the City would need to continue contributing until the last Tier I employee terminated. Then, the earnings and principle of the Pension Plan assets would be used to pay benefits until the last Tier I participant and their survivors died. If they live longer than the actuary predicts, the City would have to resume payments into the Pension Fund on a year to year basis until it is no longer necessary.

Anonymous said...

One question I have over a recent SNL article is that the pension "has been fixed" a number of times since it was created in the 40's.

The new tax will still provide a open ended problem, not a fix... should these funds disappear into Wall Street again or wherever.

Another question to ask.

I understand that the Parks Department recently made a major contribution to the retirement IRA's of the golf pros & clubhouse staffs... How much was this contribution & Where did the money come from & how was it approved?

I would suppose Mr. Burris or Ms. Adams would have these number close by.

Anonymous said...

Six trillion gone from
Wall Street
$ 17,142 per American

CU Power plant w/ interest
1 billion +
$ 6,666 per Springfield citizen

new Springfield Airport w/ interest 200 million + (no public vote needed for this item)
$1,333 per Springfield citizen

Police & Fire pensions
200 million
$1,333 per Springfield citizen

Wall Street bailout 750 billion $2,000 per American

Obama stimulus 900 billion $2,571 per American

my bonus this year $0

If you add it up for my family (so far) $124,180

Anyone else need help ??
I guess I will vote no on Feb 3rd.

Jackie Melton said...

Anon. 12:21

"The nine most terrifying words in the English language are: 'I'm from the government and I'm here to help.'" - Ronald Reagan

Car LoansCanada said...

Thanks for the great Info regarding the taxes :)
Now to Deal with Global Financial Meltdown? I wounder how that will effect our taxes?