More on Triple “Ps”

My comments on triple 'P's below brought this from reader Mark:

As has been discussed previously on this site, there are some cities out there that are in desperate situations and are grabbing for any life line available; http://www.post-gazette.com/pg/10300/1098253-454.stm ".....Mr. Ardo said the time to act was, in a sense, yesterday. "They needed to address this issue years ago," he said of the city, "and they didn't." As with the case in Harrisburg over the years politicians seem to typically look for the "quick fix" to problems and don't think a lot beyond their term in office. Those easy fixes only delay the issue, they don't resolve them. Now there are a lot of cities that are facing a situation where their options are very limited and they have very little time in which to choose before the choice is made for them either by the banks, bondholders, the Courts or the State.

I don't know of any City in this mix where the problem all of a sudden just snuck up on them, but it seems like most of them are dealing with it like they have only now realized what the situation is. I don't know the answer to their problems, but what I do know is that a solution involving municipalities defaulting in masse on bonds and pension obligations is not acceptable. I also know that covering debt by taking on more debt doesn't solve anything long term, it only makes matters worse. We need to get out of the "crisis" mindset and get into an "opportunity" frame of mind. Someone is going to figure out the right formula for these PPP's, one that is both financially and politically acceptable. From looking at the progression from Chicago to Pittsburgh to LA to Harrisburg to Indianapolis, etc, etc it seems like they are getting closer. I wish I had the "answer" right now, I could be a gazillionaire. I know there's a way to do it, and I'm putting my powers of concentration (limited as they are) on trying to figure it out. These situations aren't going to be resolved by either government or the private sector acting alone, it's going to require a cooperative effort.

Mark has hit the nail – Our city's problems didn't "snuck up on them." When times were flush, and property values were over the top, money was flowing into city coffers and of course they were spending like drunken sailors. The difference is that when sailors are out of money, they go back to the ship and sober up. Cities just keep on spending and set up endless programs that require future funding. Unbelievable salary and pension plans demanded by unions are an example. When the average municipal worker in the country makes over 100K a year (salary and benefits) and the average private sector worker is at what, $60K a year, you know that the future is untenable.

The solution, Mark, is some tough medicine. Cut Cut Cut. It means that promises made will have to be broken. It means that cities have to have a budget that equals income and stick to it. It means that these pensions have to be converted. The private sector does it all the time. One fellow who worked for a major software supplier told me that one day all the employees received a check (for the current value of their pension plan) and were given a number of alternative 401K plans to put it in. The company got out of the pension business.

Maybe the lawns at the park get mowed every three weeks instead of every other week,. Maybe city hall has to get by without so many vice mayors and assistant mayors and committees and the like. Maybe councilpersons will have to limit their staff and reduce the number of neighborhood offices they have. Maybe folks will have to drive their own cars and receive mileage rather than use the city owned fleet. I'll bet that 25% of the staff at city hall could be cut and the residents of my city at least would never know it.

Then once they get spending in order, it might be time to look at privatization and triple P's.

Just saying…

JVH

Comments

[mark]

Wherever possible cuts should be made, no question about that. The problem many of these city's face is one that can't be addressed simply thru cutting, however. When you have a pension fund that is underfunded by an amount that is equal to the majority of your budget, it's impossible to make it work with nothing but cuts. It requires new income, and in many cases "substantial and immediate" income. I doubt there are any situations where it is not a result of their own making, but it's still real and needs to be dealt with.

I know that here in Jax we can make changes to pensions and health benefits of all new and future employees, but my understanding is there are legal issues in trying to retroactively adjust pensions for existing employees. Maybe it's union contracts, or civil service rules or some other beaurocratic cluster I know nothing about, but from what I'm being told the existing pension obligations are what they are. If the City were to declare bankruptcy then I believe the Feds end up on the hook (the pensions are insured), so taxpayers still foot the bill.

In areas where pensions and/or other future obligations (debt) are not the issue then there is no argument that the only responsible approach is to cut expenses as necessary.

There are a lot of Cities out there in a world of hurt right now, and the reasons seem to be all over the board. BY extension the solutions need to be all over the board as well, but this time they need to make them "long term" solutions.