Alabama Town’s Failed Pension Is a Warning
STATES, STATE, BUDGET, DEFICIT, PENSION, ALABAMA, PRICHARD, GOVERNMENT, MUNIS, MUNICIPAL BONDS
The New York Times
23 Dec 2010 | 04:39 AM ET
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This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry.
Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full.
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Far worse was the retired fire marshal who died in June. Like many of the others, he was too young to collect Social Security. “When they found him, he had no electricity and no running water in his house,” said David Anders, 58, a retired district fire chief. “He was a proud enough man that he wouldn’t accept help.”
The situation in Prichard is extremely unusual — the city has sought bankruptcy protection twice — but it proves that the unthinkable can, in fact, sometimes happen. And it stands as a warning to cities like Philadelphia and states like Illinois, whose pension funds are under great strain: if nothing changes, the money eventually does run out, and when that happens, misery and turmoil follow.
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Current city workers could find themselves paying into a pension plan that will not be there for their own retirements. In Prichard, some older workers have delayed retiring, since they cannot afford to give up their paychecks if no pension checks will follow.
So the declining, little-known city of Prichard is now attracting the attention of bankruptcy lawyers, labor leaders, municipal credit analysts and local officials from across the country. They want to see if the situation in Prichard, like the continuing bankruptcy of Vallejo, Calif., ultimately creates a legal precedent on whether distressed cities can legally cut or reduce their pensions, and if so, how.
“Prichard is the future,” said Michael Aguirre, the former San Diego city attorney, who has called for San Diego to declare bankruptcy and restructure its own outsize pension obligations. “We’re all on the same conveyor belt. Prichard is just a little further down the road.”
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A lawyer representing the city, R. Scott Williams, said that the city simply did not have the money. “The reality for Prichard is that if you took money to build the pension up, who’s going to pay the garbage man?” he asked. “Who’s going to pay to run the police department? Who’s going to pay the bill for the street lights? There’s only so much money to go around.”
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And if a company goes bankrupt, the federal government can take over its pension plan and see that its retirees receive their benefits. Although some retirees receive less than they were promised, no retiree from a federally insured plan in the private sector has come away empty-handed since the federal pension law was enacted in 1974. The law does not cover public sector workers.
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If a “company”, another legal fiction, failed this way, then the company’s executives and directors would be in jail. The only worse offense is to fail to pay “taxes”.
So why are NOT these Gooferment officials in jail for the holidays?
Where is the various “high level” Gooferments?
Where are all the Gooferment bureaucrats charge with protecting citizens from the various “Made-offs”?
Just because this is a Gooferment doing the defrauding, it should make NO difference.
It’s called counter party risk.
Immediately, the Federal Gooferment should force all subordinate gooferments to adopt “cash basis” conversion
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