Thursday, August 16, 2007
City’s Good Financial News Very Short Lived
The good news from City Hall is that the City is running a budget surplus that will result in an end-of-the-year balance of over $90 million.
The bad news from City Hall is that the long-term obligations of debt, pensions, and benefits will swamp any surplus accumulated this year or the next.
Despite the fact that the City is supposedly bringing in better collections of the payroll and Emergency Services Tax (much of this is likely attributed to construction activity) and has a better return on its investments, the years of making overly-generous promises will have its effect in monsoon-like proportions.
All signs seem to be pointing to yet another intervention by the state, even though the City has two state-directed overseers and the state created a tax reform package in 2004. Code-words like “restructuring city government” and “a comprehensive solution” for pensions requires state action. But as we have noted before, there are things the City should have been doing and could have been doing on its own and the state’s policy agenda is going to be getting more crowded as its own pension systems are facing problems.
So instead of waiting until 2010, the City should seek this quick action via communicating with the state through the oversight board—as of January 1, 2008, all newly-hired City employees, regardless of department, will have a defined contribution pension plan (a 401K) and defined benefit plans will be phased out. Failing that, the other option is to institute layoffs to the 3,100 employee work force so as to curtail the City’s pension obligations for the future.
Everyone knows what is coming—changes in taxes the City collects and the bills for past promises coming due. Who is going to step up and do something?
The bad news from City Hall is that the long-term obligations of debt, pensions, and benefits will swamp any surplus accumulated this year or the next.
Despite the fact that the City is supposedly bringing in better collections of the payroll and Emergency Services Tax (much of this is likely attributed to construction activity) and has a better return on its investments, the years of making overly-generous promises will have its effect in monsoon-like proportions.
All signs seem to be pointing to yet another intervention by the state, even though the City has two state-directed overseers and the state created a tax reform package in 2004. Code-words like “restructuring city government” and “a comprehensive solution” for pensions requires state action. But as we have noted before, there are things the City should have been doing and could have been doing on its own and the state’s policy agenda is going to be getting more crowded as its own pension systems are facing problems.
So instead of waiting until 2010, the City should seek this quick action via communicating with the state through the oversight board—as of January 1, 2008, all newly-hired City employees, regardless of department, will have a defined contribution pension plan (a 401K) and defined benefit plans will be phased out. Failing that, the other option is to institute layoffs to the 3,100 employee work force so as to curtail the City’s pension obligations for the future.
Everyone knows what is coming—changes in taxes the City collects and the bills for past promises coming due. Who is going to step up and do something?
