Once Safe, Public Pensions Are Now Facing Cuts

The New York Times reports:

Some places, including Oregon, Rhode Island, Milwaukee County and several cities and towns in Texas, have already cut public workers’ pensions on the basic argument that their pension funds had gone disastrously out of balance. Whether because of investment losses, faulty calculations or other factors, these places have declared that they can no longer sustain a level of benefits that had looked affordable just a few years ago.

Beyond the sheer political difficulty of removing an existing benefit, an array of legal guarantees — some in statutes, some in state constitutions, some in city charters — were supposed to prevent such reversals. But lawyers have been finding chinks in the armor.

In Texas, the pension guarantee in the state constitution has an unusual clause, giving towns and cities the chance to hold referendums on whether to opt out.

Voters in Houston made that choice after learning that pension sweeteners issued there in 2001 were allowing some people to retire in their 40s. Others, who participated in a special program that let them simultaneously work and collect pension money in high-interest accounts, got an even better deal, sometimes walking away with one-time payments of a million dollars or more on top of their regular pensions. The city raised the eligibility requirements for retirement and cut some of the biggest sweeteners.

Oregon rolled back $6 billion worth of public pensions in 2003, but the cuts have been snarled in legal challenges. In October, a federal appellate panel affirmed that Oregon could stop paying a guaranteed rate of 8 percent a year to participants with individual accounts. But another measure, freezing some retirees’ cost-of-living adjustments, is still unresolved.

“Retirees have been in a state of turmoil,” said Gregory A. Hartman, a Portland lawyer representing some of them. “They don’t know what their rights are. They don’t know what they’re entitled to.”

In Rhode Island, state workers’ pensions take an unusually long time to vest, so the legislature was able to cut the planned pensions of everyone with fewer than 10 years of service, about 11,300 people.

In Wisconsin, Milwaukee County has tried to avoid legal battles by working with its eight public employees’ unions after a pension scandal broke in 2001. A recall election was held and angry voters ousted seven county supervisors from office after learning they had jacked up pensions, including their own.

“This was a totally corrupt, venal deal by a bunch of politicians and their friends who figured out how to loot the treasury,” said Roger H. Quindel, a county supervisor.

Even so, Milwaukee County has been able to make only marginal trims so far. Money is draining out of the pension fund so fast that the county has been contemplating the sale of some parks and an airport, along with cuts in government services. And it plans to ask for pension cuts when its labor contracts come up for renegotiation in January.

If there's one article you read today,read this one.In the long run,places like Houston will be in better shape than Chicago.Would you want to be a long term municipal bond holder to a place that allows government workers retire in their 40's?