Detroit's Financial Picture Continues To Improve

[emu steve]

Seemingly nothing but good news. Paying down debt, increased liquidity and money in the general funds, putting money aside for pension contributions, etc.

I liked this statement: "The city grew its general fund by $85 million in fiscal 2017, increasing its liquidity to $647 million."

https://www.detroitnews.com/story/ne...nces/33189653/

[Ray1936]

It'll be good when the retirees get their health care back.

[renf]

Does the run up of the equities markets in the last year mean that pension
funds are now much more healthy than in the past?

[Wesley Mouch]

Does the run up of the equities markets in the last year mean that pension funds are now much more healthy than in the past?

I'm not an expert on this... but you might be better to look at it as "slightly less comatose".

Its really hard to make up for past pension abuse. The benefits were too generous for the city's income. The union did too good a job. And the pension funds distributed excess earnings during good times. If they'd kept those earnings, Ray1936 might still have health care.

And I don't think Detroit has this problem, but if your city has a pension fund -- make sure that there's no requirement to invest in 'green' funds, or other socially conscious investing. Its a seductive idea that these funds will deliver 'above-market' returns. Maybe they will. I hope they will. But please don't bet what's left of Ray1936's pension on it.

[Ray1936]

And the pension funds distributed excess earnings during good times. If they'd kept those earnings, Ray1936 might still have health care.

Well, not quite. There are two city pension funds; one for general city employees, and one for police and fire. Completely separate. The police and fire retirees received only one extra check due to 'excessive funds', while the general city fund retirees received one extra check for about fifteen years. The one issued to P&F retirees was, hell, about 24 years ago or so.

Just to keep the record straight.

[Smirnoff]

It'll be good when the retirees get their health care back.

Yep, the State of MI backed or "guaranteed" against bankruptcy health benefits.....just like it previously stated in the yearly benefits booklet.

[Lowell]

Its really hard to make up for past pension abuse. The benefits were too generous for the city's income. The union did too good a job. And the pension funds distributed excess earnings during good times. If they'd kept those earnings, Ray1936 might still have health care.

I'm not sure those benefits were "too generous" for the city's income--then. What got overlooked was the severe decline of the tax base from steep and sudden population and business loss.

Highland Park's experience, of which I was resident for thirty declining years, saw its revenue shrink to where a quarter was being eaten up in pension obligations to a huge retiree group created in the days when the city, now of 10K, topped 50K far more affluent residents. Added to that just about zero retirees remained in the city.

The problem is that no policy exists for dealing with reeling communities. I guess it was just assumed in America everything just grows and grows. The result is very unfair to the retirees and to those citizens of us who were left holding the bag of a previous generation's generosity.

[Wesley Mouch]

Well, not quite. There are two city pension funds; one for general city employees, and one for police and fire. Completely separate. The police and fire retirees received only one extra check due to 'excessive funds', while the general city fund retirees received one extra check for about fifteen years. The one issued to P&F retirees was, hell, about 24 years ago or so.

Just to keep the record straight.

Fair enough. Thanks for clarification. The point remains that if those funds had remained invested, including the dot-com collapse and the 2008 financial crisis, those funds would have quadrupled if invested in the Dow.

[DetroiterOnTheWestCoast]

Fair enough. Thanks for clarification. The point remains that if those funds had remained invested, including the dot-com collapse and the 2008 financial crisis, those funds would have quadrupled if invested in the Dow.

No pension plan should ever be invested 100% in stocks, let alone in a narrow portion such as the Dow.

[BankruptcyGuy]

Yep, the State of MI backed or "guaranteed" against bankruptcy health benefits.....just like it previously stated in the yearly benefits booklet.

I don't know what you mean by that. Are you saying that you were led to believe that the State guaranteed retirees would continue to receive health care benefits? I would find that odd, because since quite a while ago [[1970s, I recall), the courts ruled that healthcare benefits were NOT inviolable, and that, as a result, the City of Detroit could unilaterally eliminate them. Do you have something to the contrary?

[BankruptcyGuy]

I'm not sure those benefits were "too generous" for the city's income--then. What got overlooked was the severe decline of the tax base from steep and sudden population and business loss.

Highland Park's experience, of which I was resident for thirty declining years, saw its revenue shrink to where a quarter was being eaten up in pension obligations to a huge retiree group created in the days when the city, now of 10K, topped 50K far more affluent residents. Added to that just about zero retirees remained in the city.

The problem is that no policy exists for dealing with reeling communities. I guess it was just assumed in America everything just grows and grows. The result is very unfair to the retirees and to those citizens of us who were left holding the bag of a previous generation's generosity.

There is no doubt that the retirees are the ones left holding the bag. But there is also no doubt that a) the politicians that approved benefits without funding them, and b) the union stewards who allowed for such a condition [[i.e. not requiring funding in their CBAs) are the ones to blame. Sadly, they are probably all dead by now.

Proper pension accounting methods have been around for centuries. But it has been too politically easy to take tax money and spend it on other things [[shiny new buildings!) instead of funding something that provides, unfortunately, nothing of value to current residents.

This is, as I've mentioned many times, not a Detroit thing, but a nation thing. The chickens are coming home to roost in places like Chicago, New Jersey, and Kentucky. There are only three ways out:

1. Raise taxes [[good luck);
2. Cut benefits [[constitutional?);
3. Bankruptcy or other reorganization.

As I said, Detroit [[the city AND its retirees) has taken the pain. It is laughable but unfunny if residents of some of these other locations think that more pain is not forthcoming.

[MikeyinBrooklyn]

This thread overlooks the problem with pensions: THE EXISTENCE OF PENSIONS. No government [[or corporation, for that matter) can verify now what the financial means of future people will be. Therefor it is wise [[well, pretty stupid, irresponsible and presumptuous) to say what future taxpayers will be able to afford. 100% of an employee's compensation should be paid in the time [[at least that same fiscal year) that said employee renders services. I am not saying that employers [[public or private) shouldn't contribute to an employee's old age, but they should do it now. Governments cannot assume that future demographics will have enough people, or that those people will make enough money, or that they will deem paying for services they did not receive is a wise use of money. Pension plans are frequently Ponzi schemes, in the literal structural sense: they presume, in order to pay out, that there will be a continuous rise in the number of people paying in & that the rise will be at a rate higher than the increase in people receiving benefits. That is unlikely, even setting aside that populations can decline [[Detroit, Wayne County, State of Michigan have all experienced this) and economies can tank. Oh, plus life expectancy is on the perpetual upswing. Many people now live for nearly as many years after retirement as they did working. Employers [[and employees) wishing to contribute to retirement, should put money in a tax-free fund of the employee's choosing. Also, people could then leave their retirement to their descendants, rather than have it die off with them or a spouse.

[Wesley Mouch]

... 100% of an employee's compensation should be paid in the time [[at least that same fiscal year) that said employee renders services. I am not saying that employers [[public or private) shouldn't contribute to an employee's old age, but they should do it now. Governments cannot assume that future demographics will have enough people, or that those people will make enough money, or that they will deem paying for services they did not receive is a wise use of money. ...

Amen.

I would also add that no pension should ever be paid that exceeds the average current worker's salary. Does anyone really need a pension that exceeds $100,000 a year, while Ray1936 takes a hit?

The idea is to provide a reasonable standard of living after years of service, not to provide a home for the mistress.

[BankruptcyGuy]

100% of an employee's compensation should be paid in the time [[at least that same fiscal year) that said employee renders services. I am not saying that employers [[public or private) shouldn't contribute to an employee's old age, but they should do it now. Governments cannot assume that future demographics will have enough people, or that those people will make enough money, or that they will deem paying for services they did not receive is a wise use of money. Pension plans are frequently Ponzi schemes, in the literal structural sense: they presume, in order to pay out, that there will be a continuous rise in the number of people paying in & that the rise will be at a rate higher than the increase in people receiving benefits.

Exactly the point I've made for over a decade. Fund them, or don't promise them. It's really not that hard

[Bigdd]

There should NEVER be public sector unions.

It is inherently corrupt.

The unions take money from the workers forcibly [[pay or you can't work here),. then use it to fund the campaigns of the most pro-union candidates,.. then the candidates [[owing the union a big favor) negotiate away the taxpayers money,.. knowing that when the massive bill comes due,.. they won't still be in office.

It's as corrupt as robbing a bank really, and leaves governments financially devastated.

[mwilbert]

There should NEVER be public sector unions.

It is inherently corrupt.

The unions take money from the workers forcibly [[pay or you can't work here),. then use it to fund the campaigns of the most pro-union candidates,.. then the candidates [[owing the union a big favor) negotiate away the taxpayers money,.. knowing that when the massive bill comes due,.. they won't still be in office.

It's as corrupt as robbing a bank really, and leaves governments financially devastated.

It's no more corrupt than any other unfunded promise of future payments, either as benefits or as payments to bondholders. Pensions are small potatoes compared to Social Security, which was not negotiated with public sector unions. The difference is what has already been stated--it doesn't matter to the funding of Social Security if people move from Highland Park or Detroit to Warren or Dallas, but it makes a huge difference to a municipal pension fund. For that reason, as BankruptcyGuy said, public pensions should be fully funded at the time the liability is incurred. If that were the rule, there would not be a problem. I wouldn't be surprised if it becomes the rule as more pension funds go under--even though they have been dropping, pension fund return assumptions are way too high. Why the pension trustees don't have a fiduciary duty to use more conservative return estimates I simply don't understand.

[mwilbert]

Does the run up of the equities markets in the last year mean that pension funds are now much more healthy than in the past?

I just looked at the pension report for the year ending June 30, 2017, and yes, they outperformed their assumptions for the year, so that will have helped the fund a bit. Not that much--these things are like oil tankers and they don't change course quickly. I imagine they also outperfomed through the end of the calendar year. But it looks like they are still assuming almost 7% [[6.91%) returns, which is almost certainly too high going forward for a pension fund mix of assets, when the 30 year bond is barely paying 3%.