This
Piece ran in today's NY Times:
The Next Retirement Time Bomb
By MILT FREUDENHEIM and MARY WILLIAMS WALSH
SINCE 1983, the city of Duluth, Minn., has been promising free lifetime health care to all of its retired workers, their spouses and their children up to age 26. No one really knew how much it would cost. Three years ago, the city decided to find out.
It took an actuary about three months to identify all the past and current city workers who qualified for the benefits. She tallied their data by age, sex, previous insurance claims and other factors. Then she estimated how much it would cost to provide free lifetime care to such a group.
The total came to about $178 million, or more than double the city's operating budget. And the bill was growing.
This is just the tip of a looming taxpayer supported nightmare. All across the nation, cities and towns have increasingly turned to their local taxpayers to bail them out with property tax overrides.
Retirement plans offered to municipal employees are just one piece of a much larger proposition, a puzzle that includes the effects of globalization on the local economy.
The rising cost of keeping your city or town afloat falls to you good citizen. If you and your fellow citizens can't (or refuse to) pony up when the bill comes due, services go on the chopping block.
But there is also the `backdoor' approach to keep in mind. If you fail to vote for the necessary funding your city or town assessor has the power to raise the value of your house and tax it accordingly.
Case in point, 13 years ago my house had an assessed value of $113,000.00, today it's assessed for $390,000.00. 13 years ago I paid $12.75 per thousand, today it's $15.25 and this is in a place that has a regional high school and no town trash collection.
Those of you who read me regularly know I'm a `big picture' kind of guy. The news is presented as a series of little slices of life while reality hits you like the tidal wave it really is.
As globalization, automation and outsourcing/offshoring have acted to eviscerate the `middle' income group of our society, those lucky enough to find jobs after the fire are more likely than not to be making less than they used to.
When a major employer leaves a region it leaves a gaping hole in the local tax base. Not only does the host community lose tax revenue, the surrounding communities suffer an exodus of the former employees who leave the area in search of greener pastures.
An employer doesn't need to leave to wreak this kind of mayhem on your local economy, a steady trickle of downsizing will accomplish the same thing.
Those workers that don't leave the area vie for lower paying jobs in the local economy. The overall effect is a big hit in revenue to the state, fewer workers as well as people who now make less money pay less into the state revenue stream, which in turn reduces how much the state can return to the cities and towns.
Your town gets it cherry sheet and finds funding for the coming year will be lower than it was for the previous year while, naturally, expenses and obligations have gone up...
"Then we knew we were looking down the barrel of a pretty high-caliber weapon," said Gary Meier, Duluth's human resources manager, who attended the meeting where the actuary presented her findings.
Mayor Herb Bergson was more direct. "We can't pay for it," he said in a recent interview. "The city isn't going to function because it's just going to be in the health care business."
Duluth's doleful discovery is about to be repeated across the country. Thousands of government bodies, including states, cities, towns, school districts and water authorities, are in for the same kind of shock in the next year or so.
For years, governments have been promising generous medical benefits to millions of schoolteachers, firefighters and other employees when they retire, yet experts say that virtually none of these governments have kept track of the mounting price tag. The usual practice is to budget for health care a year at a time, and to leave the rest for the future.
I cry BS on this claim that states, cities and towns were `generous' to their employees. When these programs were first enacted such benefits were commonplace in the private sector but I digress, let's get back to the big picture.
You, good citizen, must not only crack your own nut every month but contribute to cracking the community nut as well.
Ever wonder how real estate prices went from the ridiculous to the absurd? It all started at the assessor's office when they issued assessments higher than someone could sell their home for...with some being as high as double.
Enter the re-fi boom, which preceded the housing bubble. Yes, it seems banks were buying the false numbers. People who suddenly found themselves `equity rich' proceeded to suck the money out of their homes. This `begot' our current false economy...tons of money that quite literally came from nowhere.
Well, with stagnant income and most homes already mortgaged to the hilt we have lost the little bit of wiggle room this bit of economic razzle-dazzle provided. This by no means puts the brakes on the power of your local assessor.
You may soon find yourself (once again) living in a home that is assessed at twice what you could sell it for. The banks may still be willing to lend against the false equity but low interest rates, as well as you ability to assume more debt due to stagnant wages, is drying up.
Here's the reality of the situation drawn from our 2004 wage distribution analysis. 50% of men earn less than $27,000 per year and 50% or women earn less that $15,000 per year giving us a median individual income of $21,000 a year (M+W /2) for HALF the combined working aged population.
Home ownership, an indicator of economic prosperity, has risen during the housing bubble. Unfortunately, never has the test to qualify for a mortgage been easier to pass. If you have a pulse, you qualify.
As property taxes continue to climb due to assessments that are driven not by value but by the rising cost of maintaining services, many of us will be driven from our homes.
That's the `big picture' good citizen. A false economy driven by the economic realities of globalization, automation, outsourcing/offshoring and the resultant greatly reduced tax base.
All of this so a few can be rich...this is the dark underbelly of for profit private enterprise, people that are `free' to make decisions that are good (heck great) for them without regard for the social impact those decisions have on the rest of us.
Non-profit, labor-driven society; it's an idea whose time has come.
Thanks for letting me inside your head, (while you still can)
Gegner