Pension Tension

Since state and local governments refuse to raise taxes, their local pension funds are drying up and even vanishing.  All we seem to hear is that local government retirees have to accept cuts, but one city in Alabama simply stopped paying pension checks two years ago when it got into trouble despite that being against state law.  And Pritchard, Alabama is the future of millions of government employees.

Since then, Nettie Banks, 68, a retired Prichard police and fire dispatcher, has filed for bankruptcy. Alfred Arnold, a 66-year-old retired fire captain, has gone back to work as a shopping mall security guard to try to keep his house. Eddie Ragland, 59, a retired police captain, accepted help from colleagues, bake sales and collection jars after he was shot by a robber, leaving him badly wounded and unable to get to his new job as a police officer at the regional airport.

Far worse was the retired fire marshal who died in June. Like many of the others, he was too young to collect Social Security. “When they found him, he had no electricity and no running water in his house,” said David Anders, 58, a retired district fire chief. “He was a proud enough man that he wouldn’t accept help.”

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.

Current city workers could find themselves paying into a pension plan that will not be there for their own retirements. In Prichard, some older workers have delayed retiring, since they cannot afford to give up their paychecks if no pension checks will follow.

So the declining, little-known city of Prichard is now attracting the attention of bankruptcy lawyers, labor leaders, municipal credit analysts and local officials from across the country. They want to see if the situation in Prichard, like the continuing bankruptcy of Vallejo, Calif., ultimately creates a legal precedent on whether distressed cities can legally cut or reduce their pensions, and if so, how.

“Prichard is the future,” said Michael Aguirre, the former San Diego city attorney, who has called for San Diego to declare bankruptcy and restructure its own outsize pension obligations. “We’re all on the same conveyor belt. Prichard is just a little further down the road.” 

In other words, cities are trying to figure out from a legal standpoint if they can just slash or eliminate completely pension checks to retirees.  And before you say "Yeah, screw those guys" remember, these workers paid into pension funds for decades, on top of Social Security taxes.  It would be like your employer of 30+ years saying "Sorry, we don't have the money to pay your 401(k).  You're on your own.  It's politically unpopular for us to pay it out to you in retirement and we're not going to raise 401(k) payments on our current workers to fund your bill.  Go work at Wal-Mart."

Not exactly a situation you or a loved one would want to be in, yes?  And yet over the next few years, local, county and state workers are going to find out the hard way the pensions they were promised and paid into for years aren't going to be paid back, and may not be paid back at all.

Think about that when you say "Better them than raise my taxes one dime."

Social Security is next.

[UPDATE]  Ken at Down With Tyranny also sees the writing on the wall for public employee pensions.

The colleague who passed along this NYT story commented: "Prichard, Alabama is going to be used as a model for voiding contractual commitments made to retired public workers. Once again, contracts for working Americans are worth shit, unlike contracts for Wall Street executives who broke the economy."

Ain't that the truth.