ANTHONY FUREY – A canary in the pension coal mine

September 4, 2013

Tufts Canary

    Click here for original  – ANTHONY FUREY | QMI AGENCY

The conversation around pension liabilities was, until very recently, the most neglected subject out there.

Even when it was picked up, it was a snore.

But now the argument that governments at various levels are underwater for billions of dollars of promised benefits has made people like Bill Tufts look like oracles.

Tufts founded Fair Pensions for All in 2009, geared to shining a light on the issue. Tufts’ main point can be found in the title of the 2011 book he co-authored, Pension Ponzi. In other words, it’s all a house of cards.

The news Detroit filed for bankruptcy on July 18 gave this conversation international attention like never before.

Many ingredients combined to bring about the city’s financial downfall – including a declining population (now half what it was in 1950) and a lack of employment diversification as the auto sector declined.

But however you slice it, around half of Detroit’s near $19 billion debt was due to pension liabilities and other public benefits.

This is a rude awakening for Canadian cities and provinces that choose to ignore this subject.

Yet forces are conspiring to keep it out of sight, out of mind even longer.

In the immediate aftermath of the bankruptcy, people strangely rushed to say “this had nothing to do with the unions.”

They’re still trying to pretend Detroit’s problems are entirely due to population issues or taxpayer-backed CEO golden parachutes (another problem, but two wrongs don’t make a right) and the absurd concept of “white flight” that destroyed the downtown core (it was in fact a middle-class flight to the suburbs involving people of all colours).

For Tufts, Detroit is hopefully the canary in the coal mine for the general public.

“This should be a strong warning sign for Canadian cities,” he told me via e-mail. He predicts Montreal and Saint John, N.B., are going to suffer soon from their commitments.

But the math in Ontario sure isn’t pretty:

“Cities have been swindled out of billions of dollars that they thought was going to build city infrastructure, transportation and the other services that make a city competitive.

“Ontario is a perfect example where the pension system for employees, OMERS, has seen contributions rise from $404 million in 2003 to over $3 billion today.

“If the cost of the pensions would have kept up with inflation or economic growth, annual contributions would be less than $1 billion annually in 2013.

“The over-compensation of pensions has been in excess of $10 billion over the past decade. This is money that has been diverted away from infrastructure for example.

“Despite the skyrocketing of pension contributions the OMERS plan has seen its shortfalls growing exponentially since 2008 …”

A person’s stance on unions is largely irrelevant if there is no money around to give to public-sector workers.

And when courts rule that pensions fall in line behind creditors collecting on bonds, as may be the case in Detroit, it’s clear that promising the moon in pensions isn’t just bad for taxpayers – it’s bad for the recipients.

People plan their retirements around packages they’re never actually going to receive.

Whereas if their union leadership had agreed to a sustainable path in previous decades, they’d at least get the more modest amounts promised.

Thankfully the work of people like Tufts is paying off.

Let’s just hope it’s not too late.