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Tuesday, July 29, 2008
Officials, learn from Atlanta’s pension-fund debacle
The Atlanta Journal-Constitution
Every elected official in Georgia should be convened at the Georgia World Congress Center, their cellphones confiscated and the doors locked. Ship food in. Bring in porta-potties.
When they are assembled, bring in the actuarial experts to explain what just happened in the city of Atlanta. AJC reporter Cameron McWhirter captured the essence of it in noting that Mayor Shirley Franklin and City Council “made key decisions to sweeten pensions for city workers that have put Atlanta in a budgetary bind that will take years to escape.”
Either they were asleep at the wheel, practicing political expediency or just plain ignorant of the consequences of their actions. Whatever the explanation, the administration that raised police pension benefits by 50 percent in 2002, and did the same for firefighters three years later while increasing pensions for general employees by 25 percent, has wrought disaster on the taxpayers of Atlanta.
The city’s budget is $570 million. By tinkering with the pension fund formulas in a way that would strike the uninformed as inconsequential, taxpayers’ debt increased by a full year’s budget. Look at your property tax bill for the year. Double it —- and that’s the cost to you of the formula changes adopted without notice in 2002 and 2005.
The mayor and council increased the portion of your pension-fund debt that is unfunded from $620.5 million to $1.2 billion without gaining anything of real value in return. Oh, for a brief spell the recipients will be grateful. Beyond that, however, there’s nothing taxpayers gained in terms of efficiencies or upgrades. It’s the same system, only with a more expensive work force.
When pay is inadequate, the best solution is to give workers cash in ways that don’t increase long-term debt. The absolute worst way is the way Atlanta did it. And, in fairness, it is not just Atlanta.
Politicians are notoriously short-sighted. If it’s possible to placate complaining employees by giving them something of value to quiet them that doesn’t have to be paid for by raising taxes during this four-year cycle, politicians will jump at it every time. In that sense, elected officials are the absolute worst decision-makers on compensation issues, especially those related to pensions.
Employees own them. They elect their bosses. They elect the folks who determine how much of somebody else’s money —- somebody unknown and unseen —- should be given over to somebody they know, often somebody organized to turn out the vote.
It’s a horrible system. When money’s flush, they go for money. When it’s not, they go for benefit increases that will come due on some other politician’s watch. Horrible, irresponsible, unfixable system as it’s now structured.
There is a solution, though.
Change the system. It cannot be fixed. Atlanta tried, passing an ordinance in 1978 to require its pension funds to be fully funded by 2018. City Council has now pushed that back to 2024 and will most likely do it again.
The Georgia General Assembly, with a similar problem, closed one system and started a new one fresh. For about a decade, it stayed relatively pure. Then, as new employees started thinking about retirement, the corruptions started. It can’t be fixed. Short-sighted politicians and those who have no clue —- always the majority among elected officials —- perform exactly as the mayor and council of Atlanta did. The solution is to close every public defined-benefit pension plan to new employees. Pay all promises to existing workers, of course. But then give all new workers defined-contribution plans of the 401(k) variety. Workers own the plans. When they leave, they take the money. At the end of every day, employer and employee are settled, fair and square. All games are in the open. All incentive to favor small groups of employees is largely eliminated. Politicians know, and pay, the full cost when making decisions.
Every city and county in Georgia, as well as the state, is a potential Atlanta. Change the system.
Open the doors.
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