Will It Fly, And Will It Be The First Of Many

After months of twisting and turning, the City of Vallejo, California has finally sought bankruptcy protection. Police and fire salary and benefit costs make up roughly 75% of the City's budget, so it's no surprise that Target #1 in bankruptcy will be voiding union contracts and reducing perhaps both wages and benefits. The experts are already chiming in on whether the City's bankruptcy petition is well taken. One thing for sure -- if Vallejo is successful, other cities facing similar financial burdens will consider the same approach. Link

Is A Pension Crisis Approaching?

It seems that every day brings a new story about underfunded public pensions, particularly police and fire pensions. Here's one of today's articles.

With pensions, the devil's in the details. Modest changes in actuarial assumptions as to life expectancy, retirement ages, and expected investment rates of return can have huge impacts on the evaluation of the liabilities of a pension plan. Even with those variables, accounts of pension systems funded at less than 50% of liabilities are downright scary. Unless public governments develop responsible budgeting for pension liabilities, there are really only three alternatives: (1) Cuts in pension benefits; (2) Cuts in other public programs to fund pensions; and (3) Increased taxes.

In light of the controversy swirling around pension benefits, it's interesting to see that Rialto, California has just increased its pension benefits to the "3.0% at 50" model that's become the standard in California. Even with the opposition of a local politician who describes himself as the "Antichrist" of pensions. Link