Friday, September 17, 2010

Uncharted Territory" in WA; Calpers Bargains with Schwarzenegger; "Fairy-Tale Promises" in NJ; "No Choice" in NY; Lawsuits in CO, SD, MN over Pensions

Pension and budget crises are hitting numerous states simultaneously. In some states lawsuits are flying. Here is a roundup sample that shows the crisis has reached critical mass.

Washington State in "Uncharted Territory"

KOMO News reports Washington State budget deficit hits $520 million, 6.3 pct cut next http://www.komonews.com/news/local/103063499.html

Low tax collections are driving a new state budget deficit of about $520 million through mid-2011, leading to spending cuts of about 6.3 percent from Gov. Chris Gregoire.

Thursday's state revenue forecast showed continuing weakness in the national and state economies following the Great Recession. Arun Raha, the state's chief economist, said the economic picture is still in "uncharted territory."

Tax collections for the following two-year budget period are projected at about $670 million lower than previously expected. That makes the total drop in expected revenues about $1.4 billion, and the projected deficit for the upcoming 2011-2013 budget around $4.5 billion.

Spending cuts won't touch certain areas, such as basic education, pensions and debt service. But Marty Brown, Gregoire's budget director, said social services, corrections and community colleges will clearly face significant losses. That could lead to larger community college classes, fewer services for ill people and more.

Any plan that will not touch education or pensions is as advisable as pissing in the wind.

Schwarzenegger Proposes Calpers Loan $2 Billion to California to Balance Budget

Bloomberg reports Calpers in Talks With Schwarzenegger on $2 Billion Budget Loan http://noir.bloomberg.com/apps/news?pid ... 5BOY8gYeGw

The California Public Employees’ Retirement System said it is in talks with Governor Arnold Schwarzenegger’s administration on a proposal to borrow $2 billion from the fund to help the state balance its budget.

Anne Stausboll, the fund’s chief executive officer, said her staff has been holding informal discussions with Schwarzenegger’s department of finance on a proposal that office has floated to credit the state with $2 billion this year as an advance on the roughly $74 billion the governor estimates the state would save during the next 30 years from his proposals to roll back pension benefits for government workers.

California has been without a spending plan since the July 1 start of its fiscal year as Schwarzenegger and Democrats who lead the Legislature remain deadlocked over how to fill a $19 billion deficit. The Republican governor has vowed not to sign any final budget unless it’s accompanied by legislation to permanently cut the state’s cost to finance workers’ retirement benefits.

Note: The $2 billion loan idea came from Arnold, not CalPERS. Jack Dean at Pension Tsunami says "Calpers has been (rightfully) skeptical, even reluctant to discuss it."

Borrowing $2 billion from a pension plan to balance a budget, when the pension assumptions are 8.5% is simply nuts.

Schwarzenegger has finally taken a tougher stance against unions, but it's a little too late now that he is a lame duck.

Minnesota Pensioners Sue State Over Cutbacks

The Wall Street Journal reports Case Tests Retirees' Pension Cuts http://online.wsj.com/article/SB1000142 ... 66554.html

A Minnesota court on Wednesday will consider whether the state can curtail pension benefits for current retirees from state jobs, in a case that could affect struggling public pension funds nationwide.

States have responded to budget shortfalls by raising the retirement age and cutting pension benefits for new hires. Minnesota last year replaced its previous pension formula, which increased retiree benefits annually based on investment gains and inflation, with a flat 2.5% increase. This May, the state lowered that increase for some retirees and eliminated it for others, until the pension plans are 90% funded, a level that could take decades to reach.

A group of Minnesota retirees already receiving benefits under older pension formulas sued the state in May, seeking class-action status.

State courts generally have ruled that states can't reduce benefits for workers who already have retired. While a ruling allowing Minnesota's new pension formula to stand wouldn't establish a single legal precedent across the country, it could encourage other states, hit by deep budget deficits and a wave of baby-boomer retirements, to try to reduce benefits for current employees and retirees.

Cases similar to Minnesota's are pending in South Dakota and Colorado, and other states are watching the Minnesota case closely as they ponder solutions to their own pension dilemmas.

Stephen Pincus, a lawyer for retirees in the Minnesota, Colorado and South Dakota cases, said courts have ruled that benefits for current retirees can be reduced only when the employer funding the pension plans is on the brink of insolvency.

Minnesota says retirees have no legal right to expect a specific formula of benefits. "A retiree's future benefits and rights are subject to reasonable legislative actions that are intended to preserve the fiscal integrity and stability of Minnesota's public employee pension plans," the state said in a court filing.

Jennifer Munt, a spokeswoman for the Minnesota council of the American Federation of State, County and Municipal Employees, said the public-employee union "reluctantly" supported the pension changes "because it protected our defined-benefit pensions by taking responsible actions to stabilize the pension funds." The union believes the retirees' lawsuit is "without merit," she said.

This is an enormous case and the most amazing thing about it is support for the state from the American Federation of State, County and Municipal Employees. Hopefully, the judge will take that into consideration.

"No Choice" in New York - Governor Patterson Blames Unions

CBS News reports Gov: ‘No Choice’ But To Lay Off State Workers Early http://newyork.cbslocal.com/2010/09/16/ ... ers-early/

Going back on a pledge not to layoff state workers before Jan. 1, Gov. David Paterson said Thursday a round of layoffs will begin before the end of 2010 to close New York’s massive budget gap.

It’s always that last question that produces the bombshell: “Why aren’t you calling a spade a spade and talking about the unions in this state?â€