In the opposite of a Chuck Schumer Sunday night press conference, the City of New York made this announcement on January 26th, the day of the snowmageddon that wasn’t:
“Today, Mayor Bill de Blasio announced the appointment of John Adler as the Director of the Mayor’s Office of Pensions and Investments and Chief Pension Investment Advisor. Adler, most recently the Director of the Retirement Security Campaign at the Service Employees International Union, brings with him extensive experience in public pension and retirement issues.”
SEIU includes Local 1199, the Greater New York Health Care Workers’ Union, a union whose pension fund is so deep in the hole it is in “critical status,” as I noted in this post.
Local 1199 was also the biggest union to back Bill DeBlasio for Mayor early. It’s former pension official now joining the city “worked with SEIU locals and state councils to address threats to the retirement security of its members, and to advocate for solutions to the retirement security crisis the United States.”
Mr. Adler seems to have a lot of credentials, and when I was younger and more naive I might have believed that he is being brought in to deal with the city’s pension disaster, brought on by the rising privilege of politically powerful people who are cashing in and moving out. And perhaps cut down on the amount of money NYC pays Wall Street, in exchange for having Wall Street back its inflated estimate of future investment returns to hide that crisis. But I’ve learned to expect the worst. So what are the most likely possibilities here?
- The new pension advisor, Mr. Adler, is being placed with the city to find a way to have future New York City residents, already facing never ending tax cuts, more service cuts, and infrastructure degradation to pay for the hole in its public sector pensions, to also pay even more to bail out the Local 1199 pensions.
There are precedents for this. NYC construction unions, like NYC public employee unions, scored benefit increases for past workers cashing in and moving out during the late 1990s stock market bubble, in exchange for cuts in funding by the employers (and thus more pay and bonuses for executives cashing in and moving out). Unlike the public unions, the private unions cannot use the power of taxation to force the general public to pay for the resulting pension hole directly. So the construction unions and contractors have forced other New Yorkers to pay for their pensions indirectly instead, through inflated costs on MTA and other capital projects.
Moreover, when the MTA absorbed the private bus companies, with their underfunded pensions, city transit riders were forced to pay extra and accept service cuts to make up for that too.
And Mayor DeBlasio also increased the sky-high amount NYC pays for school buses, relative to anywhere else, probably also to pay for retroactively enriched, underfunded, and deeply troubled pensions.
The associated sacrifices are being made by younger generations and others, many of whom have nothing other than Social Security coming to them in retirement (and perhaps not that).
- Perhaps Adler is being brought in to create a bogus city-sponsored private pension plan to make private sector workers feel less ripped off, as the public sector pension crisis continues to gut their public services and raise their taxes.
Such a plan, based on those proposed elsewhere, would continue to force less well off private sector workers to pay for public employee pensions, so the most privileged among them can have an absolute guarantee of one year or more of retirement for each year worked, regardless of the consequences for others, even as those benefits are repeatedly retroactively enriched. But it would also allow private sector workers to pay for their own non-guaranteed, much less generous pensions, with the public employees paying nothing to help them. “See, you have a pension too, so stop complaining you serf. Get on your knees in gratitude.”
- Perhaps Adler is being brought it to provide justification for additional public employee pension increases, increases that (like those in the past) would not be paid at the time the deals were cut. Because those pension increases “cost nothing.” And/or defer the cost of the deals that were already done until more of the political/union class can cash in and move to Florida, where they can live off that income free of New York State and New York City taxes no matter how high that income is, and no matter how much worse off the NY residents they leave behind become.
For the Local 1199 pension funds to get so deep in the hole, somebody whose position came with a moral obligation to do the opposite must have gone along with retroactive pension increases, pension underfunding, or both. Perhaps that someone was Mr. Adler. And perhaps the “critical status” of the Local 1199 pension plans provides an implied guarantee that this is a person willing to go along with the sell out of a collective future to provide benefits to narrow interests in the present.
Bill DeBlasio is a man that believes in fairness. But I fear that vision of fairness may be circumcised. Why should he sacrifice his career to have New Yorkers bite the bullet while it remains an alternative to biting the dust? Shouldn’t he have the same right to advance his career to by selling off the collective future as all the current and former Governors, Mayors and state legislators? That is what Governor Christie is saying as he refuse to impose tax increases and service cuts to pay for his own pension reform deal. And what Governor Cuomo is saying by not addressing the absence of an MTA Capital Plan. They didn’t cause the problem, so it isn’t “fair” for them to solve it.
And what about everyone else? Something else can always be blamed later on for whatever happens to them. With enough propaganda, that seems to work for both political parties. And besides, the richer the politically powerful become at the expense of everyone less, the richer everyone else will end up someday “come the revolution.” Right?
For a more realistic take on what Mr. Adler may be brought in to face, or cash in by making worse, I suggest this article based on a pension conference at Wharton.
Despite soaring stock prices
Measured by GASB standards, four out of 10 major cities (New York, Chicago, Jacksonville, Florida, and Philadelphia) have actually seen a rise in their unfunded liabilities recently. The other six saw only modest improvements; their unfunded liabilities fell by an average of 16%. “Contributions have increased …but benefits have also increased; so the difference between the two [lines on the chart] has stayed about the same.” Rauh noted that liabilities have continued to grow, or shrunk only marginally, in part, because actuarial assumptions have proven to be too optimistic about such factors as employee longevity and about how many workers were going to take advantage of early retirement programs.
Gee, mistakes? No. The assumptions were backed in to create the results that justified the benefit increases and cuts in funding. Nothing more than lies.
Chicago’s unfunded liabilities are 10 times its revenues. “Just assume that they’re going to have to pay 5% of that [number annually]. That means you’re looking at 50% of their cash that will have go to pensions.” Philadelphia, Boston, New York, Houston and other major cities will face similar challenges. “What does it mean for cities to do this?” Inman asked. “If that number is 50%, then $1 has to get you back at least twice the benefits [you spend]. That’s a very high threshold for city services to have to meet.
Half your taxes go to those cashing in and moving out. And half go for services. How is that for a deal?
“Someone is going to have to bite the bullet here,” Inman warned. “It can be current resident taxpayers who wind up having to pay higher taxes and/or receive a lower level of services in return for their current contributions. Or it can come in the form of lower property values.” He added that the ultimate losers will be the people who own those properties whose value declines as a result. There is no way that funds and households “are going to move into a city unless they are absolutely certain that they will get dollars back for every dollar they spend.”
In those cases where an unfunded liability has been built up over time, taxpayers who move into a city in the future will have to shoulder a share of the bill for services they didn’t receive. “If they do know about [the unfunded liability], they don’t go into that city.
New York City continues to attract the young suckers, but for how long? Perhaps only as long as the costs are deferred and the lies are believed.
As for the declines in property values, in the 1970s, the last time the unionized public employees cashed in and left the city in ruins, the value of property collapsed. To the point where a substantial amount of it was abandoned. City residents weren’t protected from crime, the transit system was awful, part of the infrastructure collapsed, and it was private school, special schools for the well connected or forget it. But at least the rent was cheap. It isn’t now. There has perhaps never been a time when the two powerful interests that dominate NY state and local government – the real estate industry and the public employee unions – have been able to suck as much out of NYC residents together.
If there is some kind of federal bailout that everyone in poorer younger generations has to pay for in the future, the panelists asserted, the special interests would just have their pensions increased again – leaving the serfs no better off.
Speaking of optimistic assumptions, what kind of future rate of return would you assume if you really were going to pay the pensions, and couldn’t expect taxpayers or customers to bail you out if lies and frauds led to pension underfunding? Given the current low inflation rate, low interest rates, the low dividend yield at current temporarily inflated stock prices, and the high level of public and private debt and low level of investment in the U.S. economy.
“AT&T just lowered the expected investment rate of return on its pension plan from 4.3 percent to 4.2 percent. The public pensions also have lowered their expected rates of return — but not by much. Last March, CalPERS cut its rate to 7.5 percent from 7.75 percent. That followed a move with the same numbers two years earlier by CalSTRS.”
New York City is assuming 7.0 percent, not 4.2 percent. What does that imply about how much worse off future NYC residents will be, Mr. Adler?