Baltimore County Executive Kevin Kamenetz had an editorial in the Baltimore Sun this past weekend explaining his decision to reduce the projected rate of return on employee pension investments from 7.88% to 7.5% at a cost to the County (in additional investment) of $15 million. Here are some highlights:
On addressing future pension costs: Baltimore County has lengthened the vesting period, extended the retirement age (including for police and fire personnel), increased employee contributions to both pension and health care, and reduced cost-of-living adjustments for retirees. And so far we've been able to ensure no employee furloughs or firings, while still granting step pay increases.
On why he thought the editorial was necessary: Last week, Baltimore County reduced the assumed investment earnings rate of return of the County Employee Retirement System, from 7 7/8 percent to 7 1/4 percent. As The Sun reported, "The move was seen as a significant change for a system that wasn't in crisis."
On the effect of the change in projections: Baltimore County must now pay an additional $15 million annually to the pension system, but we do so now to ensure that taxpayers won't be saddled with an unfunded liability down the road. Although this will indeed put a strain on the county budget, it is absolutely the right thing to do for our employees and our taxpayers. As part of the county's ongoing review of its operations, we will find efficiencies to fund the additional costs.
Now, if you look at "Howard County's Retirement Plan -- Financial Statements and Auditor's Report 2011 & 2010" (PDF) you will see that the actuarial assumption of projected return underlying our funding scheme is 8% (page 11). It was also interesting to me to note that in 2009, the Retirement Plan was 96.3% funded with $8.4 million in obligations left unfunded. In 2011, the Retirement Plan remained 96.3% funded, but the unfunded obligations practically doubled to $16.4 million.
Meanwhile, Reuters reports that three of the largest pension funds for U.S. employees drastically underperformed last year, putting up a rate of return between 1 and 1.8% as opposed to the 8% target.
To be completely clear, my interpretation of numbers should be view skeptically. Moreover, in my experience writing about Howard County and the work done by Ray Wacks & Co., they always have a plan, and I presume there is one here. However, I do believe that we should view what Baltimore County is doing with an eye towards our own practices and at least be aware of the potential risks we are accepting. We also should hear what the rate of return was on these retirement accounts for 2012.
Your perspective on this breaks down into two phrases: "Looming Storm" or "Chicken Little". There is no question that we all are rightfully concerned about pension costs over the long term, but we also have our own conclusions about how that problem should be addressed. Renegotiation. Full-payment. Or, for those most coarse, the display of an empty chest with the bottom saying "Void". County Executive Kamenetz has worked both sides. He renegotiated the obligations and restocked the shelves. If he was right, and we are wrong, our options will be significantly narrowed.
Speaking of treading outside of my depth, check out this long-form piece about Paul Krugman and Estonia's austerity practices. While I am not a proponent of austerity, I go out of my way to find articles that contrast with my views, and this one can certainly go in that category. To summarize, Krugman cherry-picked some data for a chart to show how Estonia was going about the financial crisis all wrong, when a more long-term view would show that they may have actually done it right. Include a potentially drunken Twitter rant by a high ranking Estonian official, and you have yourself a very nice story.
We all may be willing to acknowledge that there has been some growth in the U.S. economy since the Great Recession. What no one seems all that interested in is where that growth is going. The New York Times takes a look in its Economix blog and the results are not all that surprising. -- "In the simplest terms, the relatively meager gains the American economy has produced in recent years have largely flowed to a small segment of the most affluent households, leaving middle-class and poor households with slow-growing living standards."
GGP has provided more detailed plans for its "lifestyle center" to be put in the place of LL Bean with 75,000 square feet of new retail space and 25,000 square feet of "open air plaza". Residents expressed concerns about parking, but as noted by the GGP representative, it is impossible (and impractical) to plan for Black Friday. While "The U" between Cheesecake Factory and Sears is always a difficult proposition for parking, an open walkway through the Mall may ease that congestion by inviting parking on the other side of the complex. We shall see. Either way, I think this will be a really fantastic project and look forward to seeing it come to fruition...after another 14 steps or so.
Howard County Board of Elections Director Guy Mickley worries about ballot fatigue as the Council considers a laundry list of Charter Amendments, including questions relating to term limits, ballot referenda, and contingency funds. Some of the members of the Charter Review Commission had raised this concern at our meetings, but more in terms of what the Council would pass, not what the voters would want to read through. Put in that perspective, all of our proposed amendments have merit, but maybe the technical corrections can (sadly) go.
Lindsey McPherson looks into the newly reached agreement to develop the Greenstone Ventures project at Gateway that maintains the "green-ness" of the project while adjusting to meet access limits set by the highway administration. Nice problem-solving here.
Featured Blog Post of the Day: You need to see the series of photographs WB took of County Executive Ulman during Marc Norman's testimony at Monday's Public Forum. Feel free to read the post as well.
That's all for today. Have a great Wednesday doing what you love!