When Public Pensions Go Broke

I’ve been sitting on this link for awhile, but the situation in Wisconsin is an ideal opportunity to finally link this article on what exactly happens when a public pension goes broke: Alabama Town’s Failed Pension Is a Warning

The situation in Prichard is extremely unusual — the city has sought bankruptcy protection twice — but it proves that the unthinkable can, in fact, sometimes happen. And it stands as a warning to cities like Philadelphia and states like Illinois, whose pension funds are under great strain: if nothing changes, the money eventually does run out, and when that happens, misery and turmoil follow.

It is not just the pensioners who suffer when a pension fund runs dry. If a city tried to follow the law and pay its pensioners with money from its annual operating budget, it would probably have to adopt large tax increases, or make huge service cuts, to come up with the money.

More:

The city had already taken the unusual step of reducing pension benefits by 8.5 percent for current retirees, after it declared bankruptcy in 1999, yielding to years of dwindling money, mismanagement and corruption. (A previous mayor was removed from office and found guilty of neglect of duty.) The city paid off its last creditors from the bankruptcy in 2007. But its current mayor, Ronald K. Davis, never complied with an order from the bankruptcy court to begin paying $16.5 million into the pension fund to reduce its shortfall.

A lawyer representing the city, R. Scott Williams, said that the city simply did not have the money. “The reality for Prichard is that if you took money to build the pension up, who’s going to pay the garbage man?” he asked. “Who’s going to pay to run the police department? Who’s going to pay the bill for the street lights? There’s only so much money to go around.”

Concluding:

Last week several dozen retirees — one using a wheelchair, some with canes — attended the weekly City Council meeting, asking for something before Christmas. Mary Berg, 61, a former assistant city clerk whose mother was once the city’s zookeeper, read them the names of 11 retirees who had died since the checks stopped coming.

“I hope that on Christmas morning, when you are with your families around your Christmas trees, that you remember that most of the retirees will not be opening presents with their families,” she told them.

The budget did not move forward. Mayor Davis was out of town.

“Merry Christmas!” shouted a man from the back row of the folding chairs. The retirees filed out. One woman could not hold back her tears.

After the meeting, Troy Ephriam, a council member who became chairman of the pension fund when it was nearly broke, sat in his office and recalled some of the failed efforts to put more money into the pension fund.

“I think the biggest disappointment I have is that there was not a strong enough effort to put something in there,” he said. “And that’s the reason that it’s hard for me to look these people in the face: because I’m not certain we really gave our all to prevent this.”

This tragic situation is one that could very well be repeated all over the country in the coming years. States and municipalities are going to have to make some tough choices and that likely means few people will be happy. Our government employees deserve a reasonable wage with reasonable benefits as much as any other employee in the private sector. But the tax payer also deserves to be treated reasonably as they are not an unlimited source of revenue. For crying out loud, the national debt is over $14 trillion. Everyone, including government employees, are going to have to come to grips with the fact that this means we will all have to take a hit – unless we desire a default situation like Prichard, Alabama that has literally become deadly. Doing nothing, or fleeing to another state, to shore up troubled public pensions isn’t a solution to the problem.

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One Response to When Public Pensions Go Broke

  1. YHunter says:

    Blame it on the unions…the greedy unions!!! Unrealistic demands!! Kowtowing politicians willing to promise anything for votes and power. It is time for the American people to wake up and realize that there is no goose that lays golden eggs. Public service pensions need to be in line with those in the private sector. Inflated pensions hurt everyone, eventually.

    My wife and I are on on social security. We supplement our incomes with part-time jobs. We don’t mind working part-time, as we are still healthy enough to do so, and work gives us a sense of purpose. We don’t live in luxury, we have to cut back, but we are not hurting. We drive an older car that we keep maintained in good operating condition. We have an older computer that does what we want it to do, so we don’t need a new one. We have very simple cell phones, nothing fancy, and cheap cellular service, and we don’t need anything more. We eat three square meals a day, but do not eat fancy foods. We don’t go to restaurants because we can’t afford it, but that is not a great loss. We watch rented videos for entertainment, and pop a bag of pop corn. No movies like we used to do when we worked and had a lot more money. Medicare and our supplement policies cover our medical needs. We own a small two bedroom house, and it is really all we need.
    We have the basics, although we are paying a lot in wasted taxes.

    Those unions that demand more than the municipalities can realistically afford, and the politicians who agree to large pensions are to blame and hurt everyone in the long run. My wife and I can live ok off of social security supplemented by part-time work.

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