Friday, June 25, 2010

Government in business to pay biggest expenses - Employees

There is a race on in our society to pillage the wealth of our nations.

We have seen the problems that Legacy Costs have created in our society. They have the potential to divide society between the haves and the have-nots.
A system where a few have a lot and the majority have - or will have - very little indeed....The difference-maker in our futures, says Bill Tufts, is going to be our pension plans. Public or private. Gold-plated pensions versus pensions that might not even hold a coat of yellow paint. ROY MacGREGOR - Globe and Mail.
Hole to Fill 
One interesting situation is occurring in England where two companies begun giving the assets of the company to employees. They have given the assets to their employees to fund pension plan liabilities. Pension plan holes to fill.

These are assets that did belong to the shareholders of the companies but are now being diverted in what Peter Drucker called the "Pension Fund Revolution". It is a form of socialism whereby pension funds control and own most of societies assets and equities. Drucker predicted that by 1985 pension funds would own, in America half of the equity capital on American corporations.

I have covered pension socialism in some of my blogs.

Government's Biggest Expense 
The biggest expense of any government organization is the compensation costs of the public sector employees. It is the commitment made to these employees after they retire that are know as legacy costs. 

Many government organization are top heavy with older baby boomers at the cusp of retirement. Having made gold-plated commitments to these employees, many organization are finding themselves short. This will put huge pressure on increased revenues for these organizations. 

Revenues to a government employee, taxes to us. 

Ontario's Power Trip: The 20% Hydro Grab
The National Post has been running an excellent series on Hydro electricity in Ontario, The author of the series is Parker Gallant. He recently reported on the anticipated 20% increase in hydro costs in Ontario.

In past articles on Hydro Ontario, Parker pointed out the huge cost of employees at Ontario's Hydro organizations.

These organizations have huge legacy costs. Part of the reason is the high compensation paid to employees. Parker covered some of the issues surrounding the compensation at the hydro monopolies. Ontario's power trip: Priced out of the market

Now we see hydro rates in Ontario will be rising by 20%.

Legacy costs
The hydro business in Ontario, all government owned have thousands of employees who are earning in excess of $100,000 per year. Of course most will be entitled to a gold-plated pension as well. On valued at 70% of their earnings. This means at retirement each employee needs in the pension pot close to $1 Million.

It is impossible to fund all of these obligations there fore the taxpayers have pension and future benefits liabilities in these electric monopolies.

OPG, Ontario Power Generation has accumulated $8 Billion into it pension plan for retiring workers. Last year the employees contributed 23% of required pension contributions or $75 million into the pension plan compared to taxpayer's contribution of $ 254 million. 

Currently there is a liability for future employee benefits of $1.5 Billion. If the plan were to wind-up tomorrow or convert to a defined benefit plan there is a $2.8 Billion liability.
OPG Financial Statement - See note 12 for pension and benefit liability details.

For taxpayers the OPG returned a profit of $ 88 million.

It has become apparent that the number one concern of a generation of soon to be retired baby boomers is the commitment taxpayers have made to their legacy costs. The focus of these government operation now is not how to make our society better, or how to make our economy more competitive. It is how can we get more revenue to make sure that the gold-plated legacy costs of the public sector is covered.

Bill Tufts
Fair Pensions For All

Thursday, June 24, 2010

Ontario for Sale ...

Yesterday Christina Blizzard from the Toronto Star reported on the sale of what is called Supercorp. It is an amalgamation of LCBO, Ontario Power Generation, Hydro One and the Ontario Lottery and Gaming Corporation. Liberals may pawn crown jewels

Combined these organizations are a large part of the economy of Ontario. Ontario Lottery is on track for $2 Billion in revenues this year. LCBO will be in excess of $4.5 Billion and OPG is on line for about $5.6 Billion in sales.

Monopoly Businesses  
These businesses should be very profitable for Ontario taxpayers because they are in highly regulated monopoly industries. They can dictate their own prices and profits. For example, OPG had a drop in electricity sales of 15% last year. This year they will be raising electricity rates in Ontario 20%. You can bet your ass...ets that if consumptions comes back rates will not go down.

The biggest expenses of all these organizations are the costs of their compensation packages. This includes salaries, benefits and of course gold-plated pensions.

Bright idea
Now the Ontario government wants to liquidate these assets for some quick cash.

Who will buy? Blizzard knows the implications
The only big investors with enough cash are public sector pension funds, such as Ontario Teachers’ Pension Plan and OMERS, the municipal employees’ plan.
Do you really want pension funds running monopolies? Since half the money that goes into those funds comes from taxpayers, aren’t we buying back assets we once owned — with our own money? Taxpayers put money into the pension funds. The funds then turn around and buy liquor stores, casinos and power companies with our money
 The Toronto Star reports:
McGuinty’s government is facing a $19.7 billion deficit this year. If the super corporation is worth $60 billion, selling a 20 per cent share could yield $12 billion from institutional investors such as the Ontario Teachers’ Pension Plan.
One bonus to all this is that McGuinty will have the cash to eliminate the pension shortfalls at Ontario Teachers. They will be able to use the cash they garner from the sale to fully fund the $17 Billion Shortfall at the teachers pension plan.

Imagine that, just before an election.

Bill Tufts
Fair Pensions For All

Wednesday, June 9, 2010

Bankruptcy - Coming to a City near you

Many US cities are starting to look a bankruptcy as an option to deal with the crushing weight of the cost of pensions, benefits and wages for city employees.

In America's 7 junkiest cities CNN highlights
cities' operating expenses continue to soar; pension and debt payments don't go away. And as their credit gets worse, the cost of borrowing for municipal projects -- such as sewer plants and roads -- just gets more expensive.
"The fiscal stress is severe in cities around the country, and it's likely to stick around for at least a couple of more years," 
The first major city in the US to go bankrupt was the City of Vallejo in California.
In 2008, Vallejo, Calif., was nearly broke. Faced with falling tax revenues, rising pension costs, and unmovable public-employee unions, the city was unable to pay its bills and declared bankruptcy
Like other municipalities, its public-sector unions had driven its budget deep into the red. A report issued by the Cato Institute last September noted that 74% of the city's general budget was eaten up by police and firefighter salaries and overtime along with pension obligations. The average city in the state spends 60% of its budget on those things.
lavish pay and benefit packages were a root cause of the city's problems. In Vallejo compensation packages for police captains top $300,000 a year and average $171,000 a year for firefighters. Regular public employees in the city can retire at age 55 with 81% of their final year's pay guaranteed. Police and fire officials can retire at age 50 with a pension that pays them 90% of their final year's salary every year for life and the lives of their spouses.

It was thought that going into bankruptcy was a way to get out from under the stranglehold that the public sector unions had on the city and taxpayers in Vallejo.
The city found out it was not that easy. The city has also cut funding for a senior center, youth groups, and arts organizations and has done little to restore an increasingly decrepit downtown, develop waterfront properties, or attract new businesses.
But when it came to voiding those contracts on pensions—a major driver of public expenses—the city blinked. The "workout plan" the city approved in December calls for cuts in services, staff and even some benefits, such as health benefits for retirees. However, it does not touch public-employee pensions. Indeed, it increases the pension contributions the city pays.  
Vallejo turned out to be a test case for many American cities. Now 2 years later many cities are finding the crush of the employee compensation packages unbearable.

In R.I. an receiver was appointed to look into the finances of Central Falls.Once again a major factor has been the high cost of pensions for its city workers. Now both San Diego and Sacramento are looking at bankruptcy as an option to end its fiscal pain. 

We have followed for a long time the outrageous concessions that have been given to city workers. They include platinum pensions and gold-plated benefits but now it seems that the breaking point has been reached. Taxpayers are on the hook and public sector unions will not budge even if it means bankruptcy.

Epic Battle 
Now the battle for unions to preserve their entitlements has begun. It appears bankruptcy may be no solution.
That leaves bankruptcy as probably the most effective tool in the drawer for lowering pension obligations. But if officials are unwilling to demand pension concessions in bankruptcy, there will be few choices left to balance their budgets other than support from the state that itself is facing steep budget deficits, or local tax hikes that could undermine local economies and thereby drive down tax revenues over the long term. That's a sobering thought in what is an already struggling economy, and an argument for government officials to be much more stingy in granting pension increases in the first place.Greenhut

Talk of municipal bankruptcy has not escaped California's politically powerful public employee unions. A number of them are pressing the legislature to pass a bill that would require local governments to get the approval of a state board before filing for bankruptcy. Since the board could be stacked with union-friendly appointees, bankruptcy pleas could be rejected or delayed.Rueters
It will be interesting to watch this battle between public sector unions and taxpayers. But I think I know who is going to lose.

Bill Tufts
Fair PensionsFor All

Friday, June 4, 2010

Canada's faltering demographics

An interesting article from the Okanagan gives us a preview of Canada's future.

The Okanagan valley located in British Columbia is Canada's retirement haven. More than a quarter of the population in the valley is retired. They have pensions or retirement funds as their main source of income. Region feels strain of demographic shift

This article was based on an analysis by Michael Brydon who is a director with the Regional District of Okanagan-Similkameen.

Brydon highlights that: 
unearthing an “empirically untrue” general assumption regarding the Okanagan-Similkameen’s economy: that it is based on agriculture and tourism. Brydon found that pensions and investments account for more than a third (33%) of the income in the district while the combined wage income from farming, accommodation and food services was no more than 6.5 per cent of the regional total.
The implications of this are staggering. This is the future face of Canada.

This analysis brings into question the issues of the sustainability of our whole society. How can we as a society support ourselves when the production of society is less than our consumption?

My question is based on the premise that those in retirement do not add any value to society but are consumers of society. They do not add anything to generate wealth but consume wealth. They consume recreation, long-term care, hospital services and prescription drugs.

The products and services that our retired population consume are one time items that add no long term value to our society, the capital stock of our society.

The article points out:
“If you go back to the 1950s and ‘60s there was huge public investment in elementary schools. Then 15 years later there was huge investment in universities ... Then the baby boomers went kind of quiet for a couple years but now we are getting back to a situation where public investment is required again.
“We know it’s coming. The question is: How do we plan for it?”

The most popular blogs I have written shows the serious state of Canada's demographics.
Tales from the other side of the aging catastrophe

Thank God we have saved some money into our pensions. It is this capital that will be save over the next 20 years. Lets hope we have saved enough!

Bill Tufts

Thursday, June 3, 2010

An Epic Pension Struggle

St John N.B has been having problems with its pension plan for several years. You would think that a problem like this would be easy to solve but it has proven very stubborn and expensive for taxpayers.

This case shows the fundamental problems with a system where politicians negotiate with public sector employees using taxpayers money. It is always the taxpayers who are getting the shaft.  

Mayor, city manager say changes necessary for long-term sustainability of plan
No matter how good the fund's investment returns are doing this year, city officials seem determined to reform the municipal employees' pension plan that's already sucked an extra $20 million from taxpayers.
 "Everybody knows this is important, from present employees to past employees, for people who are on pensions and will seek them in the future," said Mayor Ivan Court, who is also chairman of the city's pension board of trustees. "It's a national and international problem. But it's something that has to be addressed and we're all working to reach that goal."

With the news earlier this week that the pension fund of the province's 49,000 civil servants has posted a healthy rate of return of 19.94 per cent - much higher than the four per cent target - there is speculation the city's plan has had a similar rebound. The markets are still jittery, but they are doing much better than they were a year ago, when pension funds around the world were hammered.

Without enough growth in Saint John's pension fund, provincial legislation forces city taxpayers to pick up the shortfall. City manager Patrick Woods warned earlier this year that without significant reform, $10 million extra could be charged in 2011, a huge burden for a small city. Over the last several years, about $20 million extra has already been charged.
This is pretty straight forward. The plan has a problem now lets fix it. But here is where it gets nasty for taxpayers. You would think that since they are the ones funding the plan they would have a say but no...

Court, (the mayor) however, wouldn't reveal the municipal fund's latest figures, saying there was still a media blackout on such information until all the parties involved agree to a series of reforms. A special committee, which includes representatives from common council, civic unions, the city's managerial and professional staff, and retirees, has been meeting regularly for the past few months to come up with a reform package.
You can see how bad the shafting is going to be. The city sets up a committee to examine the issue and only include employees and ex-employees who will be benefiting from the plan. Of course they will inform the taxpayers when they have received a satisfactory agreement.

Let me see. The taxpayer is funding the pension plan. City managers who benefit from the plan sit down with city union members who are on the plan to make a deal?

This is the Spanish word for careful!!!

This whole affair started a couple of years ago when a city councilor, Ferguson uncovered the huge problems with the city pension plan. He spoke out against the situation. Then same team decided that they did not like what the councilor said and decided to sue him. Ferguson wins latest skirmish with pension board.Ferguson ended up mortgaging his house to pay for the lawsuit. As far as I know three years later the case is still before the court. Of course if Ferguson wins the city (taxpayers) will have to ante up for damages.

This situation has provided me with lots of amusement and has been very typical of public sector plans. The only difference here is we have a newspaper not afraid to cover the issues. There is a list of interesting article pertaining to the case. All demonstrating the inherent conflicts of interest that benefit a small group of public employees at a huge expense to taxpayers.
Is the city solicitor in conflict of interest?  
Mayor could land in courtPension 
Two councillors qualifying for public pensions say they're not hypocrites

Pension Bid to draw newspaper into lawsuit turned down

City Manager writes himself juicy deal for retirement perks 

 You can see the twists and turns this case has taken and is still no closer to resolution. But the end is very predictable. Public sector employees aided by their union will hold taxpayers in St John hostage for millions of dollars. 

Bill Tufts -

Wednesday, June 2, 2010

Manitoba Taxpayers hit with triple whammy

The taxpayers in Manitoba will be paying dearly as a result of an agreement signed with the provinces nurses. Manitoba nurses to take 2-year pay 'pause'

The triple whammy comes as the provincial government gets its election campaign prepared for next year. An elections is scheduled for October 20100.

Public sector unions are always a huge threat to any government at election time and unions use this power to their advantage to negotiate new contracts. Finally, the pressures on heatlhcare spending costs in Canada are huge and increasing at an alarming rate. Workers in healthcare will be able to write their own tickets.

They three factors combined to give Manitoba nurses a pretty sweet deal. A government up for election, a powerful public sector union waiting one year for a contract settlement and third-party taxpayer's money to fund the party.

All this comes at the expense of taxpayers of course.

Gold Plated Pensions 
The nurses have what is  know as a gold-plated pensions. It is based on a formula of final salary. This means that they are ENTITLED to a pension worth 70% of their final salary, based on an average of past 5 working years. It is integrated with CPP so that combined with CPP the income replacement is 70%.

This year a nurse starts at $62,500 per year. A retiring nurse in Manitoba will earn in excess of $100,000 per year. What this means is a pension upwards of $70,000 per year. All guaranteed of course, guaranteed for life, for the life of a spouse, now guaranteed to increase every year (indexed) and best of all guaranteed by taxpayers.

Costly Pensions 
Gold-plated pensions of this nature are estimated to cost 34% of annual salary. Nurses pay about 25% of this cost on an annual basis, the taxpayers match that amount and future taxpayers pick up the shortfall. Because not even the annual costs are covered the HEPP, hospital workers pension plan in Manitoba, has a shortfall of $400 Million. HEPP annual Report - Page 17

So rather than wrestling this issue to the ground the Manitoba government like many before them has refused to deal gold-plated pensions. They have given into the pension demands of a powerful public sector union in hopes that it will bring them victory in the next election. Note: Someone had better check what other public sector contracts are due before October 2011.

Sadly, this process shows the dysfunctional nature of the system. Politicians using taxpayers money to favor a powerful voting block in contract negotiations.

My hope is that one day, somewhere one politician will stand up and say no more taxpayer abuse.

Bill Tufts

Tuesday, June 1, 2010

N.B. Pension analyse shows Public - Private disparity

An interesting article about the stats of New Brunswick's pension plans shows the huge amounts that taxpayers have funded into these plans. It also shows how public sector employee groups expect taxpayers to continue the pension funding party.

It is a party that taxpayer fund but never attend!

N.B. pension funds bounce back
New Brunswick's 49,000 teachers, judges and civil servants can breathe a sigh of relief because their pension fund is back in the black.

But that doesn't mean the Liberal government's $749-million deficit will be any smaller this year.
That's a major improvement from 2008-09, when the pension funds lost $1.7 billion, or just over 18 per cent, in the global stock market meltdown.Sinclair said the annualized four-year return for the three funds is 1.77 per cent and since the inception of the New Brunswick Investment Management Corp. in 1996, the return is 6.5 per cent.

"Most importantly our annualized real return (after adjusting for inflation) since inception is 4.46 per cent, exceeding the target of four per cent set by the actuary," he said in a media release.

"These returns have been achieved in spite of the adverse effects of the prior year's global financial crisis."
Sinclair said unlike some pension funds, the corporation wasn't forced to sell holdings during the downturn to meet obligations to pensioners.

The corporation's net assets under management as of March 31 were $8.341 billion, up from $7.029 billion as of March 31, 2009.

The increase in net assets under management resulted from $1.384 billion in net investment valuation gains, plus $150 million in special funding payments from the province, less net pension payouts of $223 million.

The overall gross rate of return for the three funds was 19.94 per cent.
 These plans combined are almost a billion dollars short. The shortfall exists despite heavy duty contributions by taxpayers into the plan. 

Last year the employees in the pension plans contributed $111 Million and the taxpayers contributed $269 Million. The plan is still $ 750 Million short. Page 39 of a horrible report! 

The contributions work out so that the employees pays just a small portion of the total retirement funds required. Taxpayers pick up the rest!

The contributions for the general public service is 32.5 cents on the dollar for teachers it is 25 cents and for judges just 16 cents of every dollar required. CFIB calls for at least a 50% contribution

Already taxpayers have contributed the largest portion into these pension plans. The plans have $8.3 Billion in them for 49,000 workers. This works out to an average of $170,000 per worker. 

At the same time in New Brunswick taxpayers have an average of less than $ 40,000 in retirement vehicles. 

It looks like taxpayers in New Brunswick are getting the shaft!

Bill Tufts