Friday, December 31, 2010

Beware the dotted line

Really really want to end the year on a positive, maybe we will start the new year with something less negative. Anyway.. Trib follows up on the story of the Detroit pension system's losing bet on our casino: Casino's Struggles Felt in Detroit.

Here is the thing.  the story that came from sounds horrible. Risky bets cost Detroit pension funds $480 million.  Yet the Detoit pension system, which is made up of two big pension systems I presume for uniformed and nonuniformed employees were funded at 100% and 106% in their latest audits.  Granted those are from last year, but that is at least as current as our information here.

Go read the numbers yourself: See page 23 (per the pdf) of their General Retirement System audit, or the similar document for their Police and Fire Retirement system (page 25 per the pdf numbering).  I'd point you out to read the comparable documents for the pension system here... but, you know.

So even after its $480mil dollar loss (a big chunk of which coming from our casino) Detroit's pension system is three times as well funded as Pittsburgh's pension systems combined.  Maybe 4-5+ times as well funded as the Police pension fund (the worst-funded of our 3 pension funds) is here.  Detroit!?  Paragon of sound fiscal governance and transparency.

Might be interesting to look at an end of year news piece out of Detroit today. For them, their pension issues have truly become all consuming:
Another federal grand jury is probing potential problems with the city's two pension funds. Subpoenas were issued to a top pension official and to the pensions themselves seeking records about investments, including a residential real estate development in Florida.
They're mad that their pension fund is at or above 100% funding?  While we are so happy with how things are going here that we are doing anything conceivable (and the inconceivable) to make sure nothing changes here?  

Still an interesting tale of how Detroit got caught up in it all.  Below is the ownership schematic and financing behind the reoarganization of the River Casino operation as of when Bluhm took it over from Barden.  I would suggest that whenever you are a bank and have dotted lineds connecting you in a diagram like this, you have things to worry about.  The multiple colors just for the Detroit pension folks is probably a red flag in itself.  I'm just guessing Bluhm is a financial genius that is befitting a billionaire. If the Detroit pension system, and I am presuming Key Bank along the way as well took such big hits in this... then I bet his controlling interest in the casino didn't really cost him all that much in comparison.


fyi this must be all before the debt/equity was restructured.  Anyone have a similar diagram of the current, post reorg ownership structure of the Rivers Casino?  Must have a bigger chunk of equity for the Detroit pension system I figure.  I wonder if one of their pension board folks gets expense paid trips to the casino here?

15 Comments:

Anonymous details details said...

How much of their general fund expenditures are made up of pension payments?

Reading PA is also 100% funded - but it costs them a quarter of their entire budget to stay that way.

Friday, December 31, 2010 11:14:00 AM  
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Friday, December 31, 2010 12:16:00 PM  
Anonymous The Wiz said...

Interesting the debate is always on finding more funding...never about cutting the pensions. I know the unions would scream bloody murder but the reality says they should be cut.

What percentage of people in the Greater Pittsburgh Metropolitan Area get a pension? I bet a majority have SS and nothing more. A sizable # get SS plus a small IRA or Keogh draw.

Plus what percentage of these pensioners also get SS plus an IRA or Keogh draws? It would not be Armageddon if their pensions are reduced by ten or fifteen percent. Or maybe add a few more years to qualify.

What is their pay plus benefits relative to the population? Relative to their constituents? We keep hearing from our Prez that he wants fairness. Lets get some fairness here.

I realize that these issues may have been discussed here over the years this problem has been around but they need to be brought up again to pressure for the changes needed.

Friday, December 31, 2010 1:03:00 PM  
Blogger C. Briem said...

Because Wiz the state supreme court has ruled quite clearly you cant go in and take away promised pensions. You can have the philosophical debate about the long run future, but the issues in Pittsburgh won't be impacted. So you need to take all those issues up with what the Supreme Court has put on the books.

Friday, December 31, 2010 1:07:00 PM  
Anonymous The Wiz said...

Then tell the pensioners and current union members to accept a cut in benefits or the system will go into bankruptcy and the courts will decide the future pensions, if any. And if that requires the city to also declare bankruptcy, so be it.

Friday, December 31, 2010 2:25:00 PM  
Blogger C. Briem said...

City wanted to try bankruptcy in early 1990's but were told they cant.. Similarly the original ICA board looked real hard at bankruptcy for the city and deemed they couldnt do it. So again, go take it up with the state. City would love your help.

as for telling a lot of city pensioners.. a lot of the older ones are getting soemthing on the order of $500 a month to take a cut.. well...

Friday, December 31, 2010 3:01:00 PM  
Anonymous The Wiz said...

I am obviously unschooled in the technicalities of this issue but drastic actions are required.

Selling assets such as parking lots to get 200 to 300 million dollars to get to 50% funding is a band aide, as you have said. Two or three years from now, they will have to sell more assets to gain a couple of more years. In ten or twelve years, you will have a city with no assets facing the same issues.

Force concessions from the unions or let the system default. Otherwise, the city will never be solvent again.

Friday, December 31, 2010 3:48:00 PM  
Blogger Conservative Mountaineer said...

@Wiz.. I have always agreed with you on this matter. Unfortunately, you're thinking as a business person would think. ;)

Doubly unfortunately, government and Union types always cry "Waaahh. We can't do it that way. We've never done it that way."

I say let the City residents also pay more. After all, they kept electing (and probably will keep electing) the same mis-guided incomptent politcal hacks for (what?) 70+ years... a 'Boy Mayor' that never held a real job in his life, Council members that couldn't spell cat if you spotted them the 'c' and the 'a', a Council President that is defintely a few fries short of a happy meal.. doing multi-million $$ calculations (what's a few $100M amonst friends - $400M to $700M?).. not knowing what a discount rate is? not knowing what an investment earnings rate is?

The Pension Plan(s) should be re-written TODAY.. with overtime NOT in the earnings calculations, reduction in benefits for ALL new hires, etc. Attack the other side of the equation.. the expense side.

You're right.. they'll be right back at this is 5-7 years. As the chef on Food Network used to say "I gar-ron-tee."

Friday, December 31, 2010 6:47:00 PM  
Anonymous MH said...

Do you have a macro that writes these for you?

Friday, December 31, 2010 7:30:00 PM  
Anonymous BrianTH said...

The legal regime the state has established severely limits what the City can do unilaterally to cut its pension obligations. This doesn't fit with the talking points of the talk radio crowd, so they ignore it, but it is true nonetheless.

Saturday, January 01, 2011 9:17:00 AM  
Anonymous The Wiz said...

BrianTH; Sorry to be merely a member of the "talk radio crowd" but it is ludicrous that only one side of the equation can be dealt with. And the fact that the state has set limits that guaranteeing failure does not change the facts; the requirement of funding high pension rates will destroy the city.

Look at what council did yesterday (Dec 31). They passed a law that will result in parking rates sky rocking over the next ten years. And the city will raise other costs as well such as taxes, transit fees, and more. And as rates go up, fewer people will come to city, driving away businesses. The death spiral has been set.

If a city like Reading has to direct 25% of its income just on funding pensions, it will not survive for long. Unfunded pension systems nationwide are about to destroy our economy.

The municipalities need to petition the state to address these issues. They cannot find the funding to maintain their systems and survive. And if the state does not have the political fortitude to deal with it, than the cities must force the unions to do so.

My tactic, if I were Mayor of the great city of Pittsburgh, assuming there is no other legal remedy as I have been advised; Tell the unions they have three months to negotiate a pathway to financial sustainability and do so in a very public way. After all, it is the people's money we are talking about. After three months, if no agreement is reached,(which it undoubtedly won't be) then start drastically cutting back on city services. Explain to the public that you have no other choice as your hands are tied by recalcitrant unions and an uncooperative state. Force the unions to defend the high pension systems publicly by laying out all the details of how generous they are.

It would politically tough to do. But these are tough times that require tough politicians.

Saturday, January 01, 2011 10:32:00 AM  
Blogger C. Briem said...

Wiz.. I hate to say your basic premises are just off on so many points.

Businesses being driven from the city? All those "high cost" arguments are true now as they have been for decades. Why has city done so well keeping jobs.. and its not just health care and education. Downtown Pittsburgh which is not where those jobs are has kept jobs despite all those negatives... extremely high parking tax and rates and all the other costs of doing business in the city. Yet still they stay?

I'd ask someone to tell me what they consider a 'high' pension and compare it to what most City of Pittsburgh retirees make. Don't get confused by what you read about what is going on in places like San Diego where 6 figure retirement plans from the city regularly make the news. Folks like CM like to narrow the argument to the point where it is non-sensical. There are places with historic Republican control that have it even worse than we do in a per worker sense. If Pittsburgh paid its retirees what San Diego does I can't quite imagine what the liability would be? not 1 bil.. but 2 or 3.

The ironic thing in all of this is simple. City has done so well remaining a competitive place to keep jobs that it has placed a burden on residents.. thus indeed residents move out leaving the tax base to pay legacy costs that much smaller. Most of the folks who were around when these costs were incurred are likely dead, or have moved out to the suburbs.

So go ahead.. political polemics sound find and BrianTh may be a bit harsh with the "talk show" crowd.. but I have to agree that the arguments that make it 'on air' as it were are so simplistic as to be unhelpful. The truth is just not what some thing it is when you look at the numbers.

and whatever you think of yesterday's public finance debacle.. parking rates were going up no matter. That is a complete misdirection to attack yesterday on that point. LAZ was only coming in because rates were pre-enabled to rise..

Saturday, January 01, 2011 11:39:00 AM  
Anonymous BrianTH said...

The Wiz,

For what it is worth, I wasn't thinking of you when I referred to the "talk radio crowd".

Anyway, I'd agree with Chris that you may be misconceiving how impolitic the details of the current pensions are. I also agree with Chris that the primary problem is pension obligations to people who are already out of the jurisdiction.

More generally, I just don't understand you political logic. The Mayor in your scenario would be dramatically cutting services, despite not actually having to at that time for fiscal reasons, thereby punishing the City in an attempt to force the unions to renegotiate their contracts. I really don't think the media and the public would side with the Mayor in that scenario. I'm not sure how it would happen, but I am pretty sure the end result would be a new Mayor, not new contracts.

Generally, I really think people need to stop fantasizing about scenarios in which there is some magic solution to all this on a City level, which only requires a supreme act of will to achieve. Your better point was that the affected municipalities, and their stakeholders (residents or otherwise), need to be lobbying the state for reform. But the uncomfortable fact is that is unlike sweeping reform will occur in the near future, so until then the affected municipalities need to do damage control.

Saturday, January 01, 2011 11:00:00 PM  
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