Friday, January 23, 2009

Searching for pension solutions

As state, local and municipal governments confront the reality of huge losses in their pension fund assets and grimly assess the impact on future budgets, many will pursue innovative or even radical solutions, including some that likely never would have seen the light of day in ordinary times.

Out of Pittsburgh, for example, comes word in the Pittsburgh Post-Gazette of a proposal by Mayor Luke Ravenstahl to lease the city's 11 downtown parking garages, and perhaps its parking meters and neighborhood lots, in order to generate cash to pay down a large chunk of the city's $600 million unfunded pension liability.

The article notes a significant potential downside: a large increase in downtown parking rates. The mayor responds, however, that while he would like to "protect parkers", he must look out for "city taxpayers and pensioners" first. He goes on to add that while it is uncertain this effort will be successful, a parking lease could be "another piece of the ultimate...plan for the long-term legacy costs for the city of Pittsburgh."

Here in Milwaukee, meanwhile, the news keeps growing worse for the county's pension fund. Poor investment returns have reduced the market value of the fund by more than $500 million during the past year, and the unfunded liability now stands at more than $900 million.

Even if the county proceeds with its plan to issue Pension Obligation Bonds (POBs) - which a report before the Finance and Audit Committee next week indicates is still on track (see a previous blog post on POBs here) - that would only cover about $400 million of the outstanding liability, leaving the fund still vastly underfunded. In fact, the combination of POB debt service and costs associated with current and future pension fund liabilities could require an $80 million contribution in the county's 2010 budget, which is $32 million more than the amount allocated in 2009.

Will Milwaukee County officials respond with a plan for their long-term legacy costs and might such a plan involve selling, leasing or otherwise identifying new ways to make money off existing assets? During 2009 budget deliberations, the county board showed little interest in that approach, rejecting a proposal to study a long-term lease for General Mitchell International Airport, and also rejecting much smaller initiatives to lease the O'Donnell Park parking structure and install parking meters on Lincoln Memorial Drive.

Whether these types of strategies are the best or only options for the county certainly is debatable. As we have blogged previously, asset sale and lease proposals should be held up to a rigorous litmus test to ensure the public interest is served. The Chicago Tribune also has reported that Chicago's fascination with asset sales and leases has driven up costs for consumers.
But desperate times do call for desperate measures, and an $80 million pension payment in next year's budget certainly qualifies as desperation time for Milwaukee County. Selling or leasing county assets may or may not be a practical and correct answer, but with several months to go before the 2010 budget process begins, it is critical that this and other creative options at least be discussed as part of immediate bi-cameral planning for another substantial pension hit.

1 comment:

Dave Reid said...

It seems to me the idea of leasing Mitchell was merely a pipe dream as by the time it was first mentioned the window of opportunity was already closing. That said leasing of parking garages might be something to look into if it will help cover the gap.