Larry Littlefield's blog
Comptroller Liu released a report that claimed, media stories based on a press release said, New York City pension expenses have increased due to poor investment returns and not retroactive pension enhancements for NYC public employees. But that isn’t what the report, which contained little more information than a press release and no back-up, actually said. Liu claimed that 48% of the pension hole, which he is apparently prepared to admit exists, is due to low investment returns, and 44% is due to retroactive pension enhancements that were voted for by the state legislature in Albany. The rest is due to the fact pensions have automatically become richer for public employees, as they live longer in retirement relative to the years they have worked. For private sector workers, longer lifespans means living on less each year or running out of money.
Adding it up, 52% of the pension hole according to Liu is due to NYC public employees getting a richer pension deal at the expense of other people, the majority of whom are less well off. And just 48% is due to what he calls low investment returns. This is nearly plausible, but I have five main problems with it.
If Governor Cuomo agrees to allow school districts outside New York City to not pay required pension contributions in excess of 8.6% of payroll, even as New YorK City's pension contributions for teachers soar above 30% of payroll (and that probably isn't enough), he's just like all the rest. In two years, those school districts would claim they couldn't pay the pension funds back without "devastating" cuts. And the legislature would offer Cuomo two options. Raise taxes, some of which would be collected in New York City, to pay for the pensions of those who worked outside New York City (even as city services are gutted to pay for its own, separate pension system), or cut New York City's share of state school aid to pay for the pensions elsewhere.
Over the past 20 years, while local government employment has fallen in New York City, it has risen by 130,000 plus future pension recipients in the rest of the state. New York City public services are already being cut back due to is own irresponsibility, and the irresponsibility the state government forced on it, and now the even more irresponsible local governments in the rest of the state want New York City to pay for that too. And the members of the state legislature who proposed this are the moral equivalent of the federal government's Paul Ryan, who wants even more spending on senior benefits for those 55 and over with massive cuts for those younger. They are members of Generation Greed, and among its worst members.
In my previous posts on the MTA, I suggested that the subway and commuter rail systems should break even on an “auto equivalent basis.” That is, fares and other operating revenues (from advertising in the cars for example) should cover the cost of buying, maintaining, and operating the subway and railcars, and collecting the fares. I also suggested that “rent” paid by drivers, in the form of tolls, in exchange for transit riders giving up their share of the street should cover the cost of the rail infrastructure. And local government contributions and station operating revenues (in store rents and station advertising) should cover most of the cost of the stations.
But what should be included in the costs to be covered as described? In particular, pension contributions, according to MTA consolidated budget documents, are expected to equal 20.7% of payroll (including overtime) in FY 2011, rising to 22.7% (and probably more (in FY 2014). Is that part of the cost of transportation today? And what about retiree health care? Yes and no.
So Ryan is coming out with his proposal to eliminate Medicare and Medicaid. The details are sketchy at this point, and I'm not someone to deny that something has to be done and thus dismiss a proposal out of hand. Nor am I a Democrat looking for partisan advantage, or someone unconcerned with the deficit or the cost of government.
But I already know Paul Ryan and the Republicans are a fraud because no sacrifices will be imposed, and no changes will be required, for those age 55 and older. Which means those born in 1956 or earlier. Which means means those who were 17 in 1973, the year wages peaked for most American workers. The richest generations in American history, the first to leave those coming after worse off in the private sector, the ones that created all those deficits and debts and unfunded pension obligations in the public sector, the ones who wanted more senior spending and less in taxes, Generation Greed, gives back nothing. And there is a barely an acknowledgement of what this means in a moral sense. The plan is for the distinction between those under and over 55 never to be acknowledged, discussed and justified. With a help of the same media that is run by the same generation as government -- and even the Tea Party. So entitled is Generation Greed that it is demands not only to get more benefits at the expense of those coming after, but also to have this hidden so they don't feel bad about it. I'll bet they'll even say they are "doing it for the children."
You may not have chosen to believe me, when I pointed out that the retroactive pension enhancements for public employees, particularly for NYC teachers, would destroy public services, particularly the NYC schools, because so much more money would have to be spent on the pension plans and not the classroom. But now we have independent confirmation from both an independent actuary and the Center for Retirement Research at Boston College that the NYC Teacher pension plan is one of the handful of most desperately underfunded major pension plans in the country. Two sources with two points of view, neither of which is right wing anti-union anti-worker although that is the shrill excuse the unions are making.
And you may not have chosen to believe me when I showed that as a result of the pillaging of corporations by those who run them, lower interest rates, and lower inflation, the expected future rate of returns on pension assets is much lower than most public employee pension funds assume. But would you believe John C. Bogle, founder of investment giant Vanguard Funds and the last honest man in finance? I certainly have, which is why I haven’t believe the BS Wall Street has been putting out for 15 years.
I just got an e-mail from the Center for Retirement Research at Boston College touting this report. The Center takes a very pro-public employee, pro-senior citizen position: there is "no choice" but to cut benefits for future employees and defer needed funding from the past to burden future generations of taxpayers as public services melt away. No way anyone who benefitted from retroactively enhanced pensions should be asked to sacrifice. The title of the report is "Can State and Local Pension Plans Muddle Through."
Now I cited independent actuary John Bury's analysis of all state pension plans and major city plans that shows that the NYC Teacher pension plan is one of the most underfunded in the country. Now this from the CRR: assuming an 8.0% return (which is nonsense as I showed here), most plans have at least 15 years before running out of money under the termination concept and 30 years under the ongoing concept. "Notable" exceptions include eight plans mentioned, including the New York City Teacher's plan.
In an overview of the remaining options for the MTA, I suggested that the buses and the payroll tax/taxi surcharge revenues be transferred to New York City and the counties, and the subway and commuter rail systems be required to break even on an auto equivalent basis – covering the cost of buying, maintaining, and operating the rail cars and collecting fares. This left other operating expenses to be covered by other revenues.
I had forgotten to mention paratransit, but that service should also be transferred to NYC and the counties, along with the buses, and along with paratransit reimbursement revenues. I’m not sure they could do a better job than the MTA, given that NYC has very high school bus costs despite having a much lower than average share of its children take school buses to school, in part because a well organized industry makes lots of campaign contributions to the New York City Council. But I’m not sure they could do worse either, given the insane cost of NYC paratransit per ride and the soaring share of people who somehow qualify. This post is about the maintenance of the infrastructure, and the stations.
When I heard that New York City's population did not rise as much as expected, my initial reaction is there must have been a large reduction in average household size. With the city becoming relatively more affluent, one might assume that fewer people were crammed into each housing unit. Or perhaps some of the roommates were not admitted to. With the large baby boom echo cohort moving out of childhood, however, I thought the share of housing units occupied by empty nesters might have risen.
But a quick look at average household size shows an increase from 2000 to 2010, reversing decades of decline. Which makes sense given that every generation is becoming worse off than the last, because of the last. Whereas the 1960s generation moved to apartments in Manhattan, my first NYC apartment in Kingsbridge, the Bronx was shared with three other people, one to a room. Now young people live four to a room. Nevermind.
In my post on a way out for the MTA, I proposed making the subway and commuter rail systems semi- self funded. They would be required to cover their costs on an “auto-equivalent” basis, with riders paying for the ongoing purchase, maintenance and operation of railcars and the collection of fares through fares – but not for tracks or stations. Motor vehicle drivers, after for comparison, pay to purchase, maintain and operate their own motor vehicles, but they drive on streets funded by general taxes (as well as highways and bridges funded by gas taxes and tolls). A simple requirement for specific costs to be covered could cure some of the dysfunctional politics that is destroying the transit system.
In my first post on a way out for the MTA, I proposed breaking up the MTA transit monopoly and settling the payroll tax controversy by turning the bus systems, and the payroll tax/taxi surcharge revenues, over to New York City and the counties. New York City and the counties would also shift their existing MTA contributions, excluding those for rail station maintenance, to their bus systems. The MTA would no longer operate buses. If the suburban counties didn’t want to keep the surcharge, fine. If they didn’t want to have buses, fine. These new transit systems would not inherit the rules of the old ones. Just the vehicles and depots. One might think, given this proposal, that I have joined the many MTA bashers. Having worked at NYC Transit twice in two different eras, I in fact know more about MTA dysfunction than most of those complaining, but I also know the agency works better than most in the public sector. My actual reasoning is as follows.
I swore off suggesting solutions to New York’s state and local public policy problems some time ago, on the grounds that there is not chance that any of those suggestions would be implemented. Let’s face it, most of those in charge don’t actually think there is a problem, because things are working out very nicely for themselves and those who help keep them in office, and the damage to others is irrelevant as long as it can be deferred or blamed on someone else. And when things get really bad they can always do what con artists always do – take their pensions and skip town.
But what the hell. The financial situation of the MTA is something I happen to know a great deal about, and I don’t want to remain silent in the face of the propaganda and rationalizations that everyone in New York politics is determined to make. They should not be allowed to pretend it isn’t happening. And they shouldn’t be allowed to pretend, even now, that nothing could be done about it. So here it goes.
They are just a way for current workers and retirees to give back nothing while claiming they have sacrificed, while public services are destroyed. That's what happened in New York City in the 1970s, after all, despite Tier IV. Just ask an honest actuary writing for Governing Magazine. Two recent reports, he said, show "the obvious need to adjust pension and retirement benefits of current employees as well as new hires — a concept that until now was avoided by politicians across the country and is now a heated topic pending in several courts today." That's because "the stock market alone cannot save today's pension funds from the $800 billion in underfunding problems that they have accumulated from overly generous benefits increases, a decade of stock-market underperformance, and employer underfunding. To make matters worse, nearly $2 trillion of liabilities of retiree medical benefits program are almost completely unfunded."
For his opinion as to what should be done, read the linked article.
Where folks have found out the hard way that government of the seniors, by the seniors, and for the seniors eventually leaves no one left to pay for the seniors. New York suckers take note. "More than 1,000 chanting protesters rallied at the state Capitol today against a proposed tax on retirement income that Gov. Rick Snyder called a necessary move that had silent support from many people. The governor’s mantra of 'shared sacrifice' isn’t sitting well with many retirees, though."
Michigan's Governor is open to criticism because he is using some of the revenues from having retirees pay the same taxes as those who are working to cut business taxes. The fact that the state has lost a huge share of its jobs -- and the young workers that go with them -- over ten years does not seem to concern those with retirement income, which in that state is now higher than the hiring wage. Here in NY, it would be nice if we just had more money to pay for public employee pensions and retiree health care without destroying public services.
Proponents of nuclear power, back in the days of anti-nuclear protests following Three Mile Island, believed that people feared nuclear power because they feared the unknown. With the current disaster unfolding in Japan, however, I'm beginning to think that I didn't fear nuclear power because of what I didn't know. I didn't know you couldn't turn it off.
Here is the standard education in nuclear power provided to someone who got a pretty good education by 1970s standards, and has a very good long term memory. The nuclear reaction is controlled by control rods. You pull them out to start the reaction, and put them in to shut it off. You are safe, because of the control rods. Well in Japan, the reactors survived the earthquake. They survived the tsunami. The control rods were inserted. But the tsunami knocked out power to the plant, shutting it off. And when it shut off it went into self destruct mode.
Liu's report compares private sector and public sector pay, and claims that NYC's public employees are underpaid and thus, one might assume, are being cheated and deserve to retailiate by doing less work in the coming year. But they way the comparisons are made shifts from one part of the analysis to the other, always in ways that would make public sector pay seem lower.