Fernandez, Harp Differ On Proposed Pension Fix
| Aug 27, 2013 1:38 pm
Henry Fernandez suggested a way to defuse New Haven’s pension ticking “time bomb”: convince the city, the state, and government workers to cooperate on a rescue plan. Toni Harp called Fernandez’s plan “sophomoric”; even if it made sense, she argued, he couldn’t pull it off.
The two mayoral candidates offered those different perspectives Tuesday morning, as Fernandez held a press conference to flesh out a proposed pension fix he first proposed last week. Click here to read his proposal. The press conference took place at the home of supporter Robin Golden, a former Yale law professor and housing authority official.
Fernandez said his plan addresses the problem of ballooning pension obligations, which will gobble up more and more city tax dollars, leading to service cuts, increased taxes, or worse.
He began Monday’s press conference by laying out the scope of the pension problem: The city has $505 million in unfunded pension liabilities. Public employee pension funds are only about half-funded. As a result, the city’s bond ratings agencies have lowered their outlook on city debt.
His plan is to convince the state, the city, and municipal workers to sign on to an agreement. The state would agree to increase the amount of Payment In Lieu Of Taxes (PILOT) money it gives to the city to the level it was in the 1980s, an increase of about $20 million. The city would agree to take the extra money—an estimated $20 million per year—and put it towards the pension fund. City workers would agree to increase their pension contributions for as long as the city and state are increasing theirs.
Left unchecked, the pension problem will hurt the state, the city, and city workers, Fernandez said. City workers face the possibility of layoffs and cuts to pension and health care benefits. The state could be forced to step in an take control, which would cost the state tens of millions for years. The city would be forced to cut services and raise taxes. If the state took over, the mayor and Board of Aldermen would become irrelevant.
The solution, Fernandez said, is his planned agreement. He said the state and city workers would sign on if they’re shown it’s in their interest to do so, since the alternative is much worse.
“I start with the assumption that everyone can see their self-interest,” he said.
Harp—an 11th-term state senator who like Fernandez is running for mayor in a Sept. 10 Democratic primary— called Fernandez’s plan a non-starter given the realities of the state Capitol.
“Just based on my knowledge, having had to cut hundreds of millions out of this biennial budget,” Harp said, “there aren’t really the resources” to give the city an extra $20 million a year.
“There would be competition between towns,” Harp said. Other Connecticut municipalities have worse pension problems than New Haven, she noted.
Hamden’s pension plans are funded at a lower percentage than New Haven, for instance.
“It’s a great idea. But it’s probably not operational,” she said. “And even if it were, I don’t believe he has the relationships to make it operational.”
“I’ve been in the legislature for 21 years. I’ve only heard of Fernandez coming there one time,” she said. “He’s never spoken to me.”
“Every town in Connecticut wants money. They’re all suffering the same as we are. To think that we can go up and get an extra $20 million is kind of sophomoric without understanding what it would take to get that. It sort of says to me that he doesn’t really understand the economy that we’re in.”
Asked how she’d deal with the pension problem, Harp said, “First, I would really try to understand what the problem is and where it started.” She said she’d look at why the pension fund investments are underperforming: “What will get us at least the best return on what we haven?”
Then, Harp said, she would seek advice from the state treasurer, who has worked on a similar problem with the state teachers pension fund and “has come up with a way to get it close to fully funded.”
“It doesn’t appear that Sen. Harp knows what was done with the teachers’ pension fund,” Fernandez responded later. “It’s my understanding that the fund was filled with borrowed money. And then when the market crashed in 2008 and 2009, there were huge losses. What she’s suggesting is very dangerous for the city of New Haven in a wholly inappropriate effort to solve a very serious problem.”
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posted by: OneCityManyDreams on August 27, 2013 1:53pm
ONG; “First I will try to understand what the problem is”. Jesus, help us. Please Senator, don’t try. If after 21 years you can’t get the hang of this, please let someone else try.
posted by: anonymous on August 27, 2013 1:55pm
Kudos to Harp for calling out Fernandez.
“He’s never spoken to me.”
That’s the trouble with Fernandez. He’s been AWOL from the city for years. I have been to probably hundreds of different city hearings and meetings on pretty much any topic over the past decade, and haven’t seen him at a single one.
Meanwhile, Elicker seems to be at every African American house event, tree planting, parent organizing event, preschool organizing meeting, school lottery meeting, slumlord-fighting meeting, boarding-house-fighting meeting, community management team, park design session, city economic development meeting, and Board of Aldermen meeting that has ever been held in New Haven. Not sure how he does it, but he always shows up on time, contributes and gets things done afterwards.
Harp has showed up to meet with neighbors here and there too, though she is definitely open to some of the same criticism that she piles on to Fernandez. Even though she hasn’t contributed very much in terms of standing up to fight for the needs of city residents at a local level, and has made some very poor decisions like sneaking Keno into the budget (a move that will destroy the fabric of city neighborhoods), at least she has been a presence in the state news along with Looney and the other delegates. I’m sure she’s put in long hours, like Elicker has.
posted by: Anderson Scooper on August 27, 2013 1:57pm
How big are the pension payouts? Does anyone have a list?
You hear stories of police and firemen retiring with pensions of greater than 100% of their base salary. (Due to overtime.) Is this true?
Frankly this City doesn’t have the resources to pay people close to six figures in retirement, particularly when many are retiring in their late 40’s or early 50’s.
Does anyone have the actual data?
posted by: poetbum on August 27, 2013 2:03pm
So Harp has no idea how the pension fix arose, or any idea how to get out of it that doesn’t involve gambling with the fund in the hope it will get higher returns. Lottery tickets, maybe?
posted by: schummi on August 27, 2013 2:24pm
So Fernandez has a plan to solve the problem and Harp doesn’t know why there is a problem. AND she won’t even look into it until elected?! Why can’t she check into it now?
posted by: Atticus Shrugged on August 27, 2013 2:40pm
To criticize Senator Harp for not having a magic bullet is, in her words, sophmoric. If it were truly that easy to fix a budget and erase pension deficits, every city would do it. As to Harp’s interest in reviewing the funds the pension invests into to ascertain whether it is properly funded, this is a good thing. Also, it is wise for her to ascertain which accounting method has been used to come up with the current short fall. As you all know, the method of accounting for pension plans impacts the “deficit” as well as a City’s budget: http://online.wsj.com/article/SB10001424127887324747104579022781831032554.html
Regardless, nothing Senator Harp does will indeed quiet those who presume - without justification - that she is inadequate. She is correct, the State will never fully fund PILOT. The unions won’t give up their pension benefits without a fight. And no opposing candidate has the relationships to make significant progress on this issue.
I’m very pleased with her responses and her understanding of the complexity of the issues.
posted by: cedarhillresident! on August 27, 2013 2:47pm
jason I disagree. there is one thing that can happen state take over, where all contract can be null and void. We need to find a way to fix it…and reality the tax payers and renters can not take anymore increases!
posted by: Razzie on August 27, 2013 2:53pm
Where were Henry’s big ideas when he was part of the DeStefano administration that created this pension fund problem. During the period he served as Deputy Mayor, why didn’t he tell John that the City had a problem that would only get worse? My guess is that he totally bought into John’s “spend now—worry later” approach to union contract negotiations. He had little credibility then, and has even less now that he has been off making money for the last 6 years.
I appreciate Sen Harp’s thoughtful approach to addressing the most important issue that the new administration will be called upon to handle. We don’t need sound bites. We need someone who knows the stakeholders, and who commands their confidence and trust. That person is clearly not Elicker. Although he has been a hard campaigner, I don’t recall meeting him at any AA house events or community forums until he started running for Mayor. There is still much he needs to learn to branch out from his East Rock enclave.
posted by: Noteworthy on August 27, 2013 2:55pm
OMG, Really Notes:
1. I’ll not take Mini-me Fernandez to task for his pension fix except to say, any solution that relies on the state as a partner is ill advised. The state is broke. It’s on the “death spiral” states list; and was just named as the second worst place for retirement just last week. Thank Toni Harp.
2. Once again, in her own words, Toni Harp announces that as mayor, as a near lifelong resident in this city, that she has no idea as to the genesis of the city’s pension crisis nor any clue as to how to fix it. OMG. But she wants to be mayor.
3. General Primer for Toni: It started with greedy unions (you know them - they endorsed you) and an unholy alliance with a guy you also know: DeStefano, who talked big, promised bigger and will exit the city’s politics and leave us with massive debt, no rainy day fund, a bloated budget and mountains of unfunded liabilities and off balance sheet debt.
4. Short Primer: The payroll is bloated, particularly in the police and fire departments. We currently employ/budget almost 40% more firemen than the national average for a city our size and they all carry generous, Santa Claus on steroids pension and health benefits. A nearly identical story can be told at the cop shop. The rate of return on our pension fund is budgeted at 8 or 8.5% - said return hasn’t been seen in probably a decade or more.
5. State Treasurer Denise Nappier is a poor choice for investment advice. In 2012, the pension fund lost almost a full percent even with a rising stock market. This year, she is doing much better but only because of the buoyant stock market that has delivered huge gains according to the HBJ. It’s rather surprising Harp doesn’t know this.
6. Pinnochio Moment: “...having had to cut hundreds of millions out of this biennial budget…” This same budget INCREASES spending by a BILLION dollars. No cuts. Stop lying. Moving the deck chairs around is not re-decorating.
posted by: EPDP on August 27, 2013 3:13pm
I would expect that anyone running for mayor of New Haven should have some “understanding” of the half a billion dollar underfunded pension fund. And what does the “economy” have to do with the underfunded pension? Does Ms. Harp really think that the economy is going to miraculously skyrocket and cause the returns in the pension fund to fill the half a billion dollar shortfall? Any Mayor of New Haven will have to look to the State for help to fill the gap, there are no other solutions short of printing hundred dollar bills in the basement of City Hall. Does Ms. Harp propose printing hundred dollar bills in the City Hall basement? Or does she propose that the City file for bankruptcy? She should have some ideas at this point in time, other than trying to gain an “understanding” of the problem and “where it started.” It doesn’t take a rocket scientist to know that the “problem” started many years ago when the City was giving out golden handshakes and generous pension benefits to cops and fireman. Anyone who has lived in the City for the past 20 years would know this. Apparently Ms. Harp never read the New Haven newspapers over the last twenty years.
posted by: mstratton on August 27, 2013 4:11pm
The solution is several fold. First, state law calls for 77 cents on the dollar for all tax exempt property in New Haven. The legislature has not fully funded this law for decades. New Haven is the worst hit since we have a much larger share of tax exempt properties than other cities and towns.
Second, we ought to convert these defined benefit plans into defined contribution plans ASAP. This can be done by extending a carrot to our union workers: higher pay today, lump sum payouts for amounts due over time, and a benefit structure that equals what 34-35 workers get.
We can bond the lump sum payouts which will end obligation to make payments in the future. This is not a perfect solution but it stops the bleeding and begins a culture of paying today for services we get today.
Finally, there should be some responsibility for those who retire at a young age to stay on as part time youth officers. Salt and Pepper show us the value of having adults in the neighborhoods who know the kids. Retired cops and fireman are perfect for this and should receive additional consideration for taking this on post retirement and living in the city.
Henry may not have it exactly right but to simply say we aren’t the worst case of pension deficits is frankly irresponsible.
posted by: Michael Pinto on August 27, 2013 5:19pm
Fernandez is clearly mistaken if he thinks the State will increase PILOT funding to bail out New Haven’s pension problems.
Harp is right about that. And as chairman of the appropriations committee Harp knows all too well that the State has not funded PILOT at the statutorily required levels for years.
PILOT is supposed to reimburse 77% of money that would be collected in property taxes on property owned by private colleges and universities and hospitals. Actual reimbursement: 35%. For State owned property the rate is supposed to be 45%. Actual reimbursement: 27%.
And Yet Harp claimed that as the chair of the appropriations committee she has been making sure New Haven has all the money it needs. That takes gall.
Only Justin Elicker demonstrated a commitment to confronting the pension issue directly, and making the tough choices that will entail. A phased transition to a defined contribution plan is absolutely necessary.
posted by: alex on August 27, 2013 5:28pm
I’m not sure I follow, mstratton, how “bonding lump sum payments today” will get rid of the need to pay for things tomorrow. Don’t bonds… also need to be paid back?
posted by: Threefifths on August 27, 2013 8:05pm
The problem is not the pension pay outs.The problem is the raiding of the pension coffers.In fact this problem is in both the Private and Public Sector. Employers blame an aging workforce, stock market losses, and spiraling costs.But the real deal is the retirement industry—benefits consultants, insurance companies, and banks all played a huge and hidden role in the death spiral of American pensions and benefits.There was more than enough set aside to pay the benefits earned by two generations of workers, no matter how long they lived. But by exploiting loopholes, ambiguous regulations, and new accounting rules, companies essentially turned their pension plans into piggy banks, tax shelters, and profit centers.So the question should be how do you stop the raiding of the pension coffers.
posted by: WestvilleCitizen on August 27, 2013 10:35pm
Would Senator Harp care to get back
to the citizens of New Haven with her plan prior to election day?
And I do not count recreating David Swensen’s
investment returns a plan.
posted by: Burbel on August 27, 2013 11:48pm
If I understand you correctly, mstratton, you propose to finance the conversion of the pension system from defined benefit to defined contribution by borrowing the cost? Similar to Malloy’s bonding to deal with the cost of converting the state budget to GAAP?
Also, how does this actually solve the problem - you appear to be suggesting that we merely shift the investment risk (and therefore the problem) to the employees?
Meanwhile the main issue is the failure to fund the pension in the first place.
So you’ve not addressed the source of the problem at all - just allowed the politicians to escape it.
posted by: SaveOurCity on August 28, 2013 6:19am
Another example that Harp is lost and has no solutions (in fact, she’s not sure that there’s a problem).
The big question for election day is whether people will blindly follow all these endorsements or if they’ll think a bit and make an intelligent choice.
Time will tell.
posted by: Elm City Lifer on August 28, 2013 6:25am
ACCORDING TO THE MINUTES OF THE POLICEMAN FIREMAN FUND JAMES KOTTAGE THE FIRE UNION PRESIDENT IS CHAIRMAN OF THE FUND. WHY IS HE CHAIRMAN AND NOT A CITY REPRESENTATIVE AND WHY HAS HE SEEMINGLY HELD THIS POST FOR YEARS WHEN THERE ARE MORE CITY COMMISSIONERS ON IT.THATS VERY STRANGE.
NEW HAVEN INDEPENDENT CAN YOU INVESTIGATE.
posted by: robn on August 28, 2013 9:33am
So let me get this straight. Harp and crew are pronouncing her effectiveness in Hartford but then calling Fernandez’s ridiculous because he pursues full PILOT funding (PILOT has been funded below statutory requirements for years) ( read :Harp has been ineffective in the legislature )
posted by: Razzie on August 28, 2013 11:14am
I am not calling Fernandez’s full Pilot plan ridiculous ... I am calling it delusional. If he thinks New Haven will convince the State legislature to dump that kind of money into the New Haven BoA hands to do with as it pleases, he has a screw loose somewhere. Not even Elicker (who has only been in public office slightly more than 1 term) suffers from that type of pollyanna dreaming.
posted by: Atticus Shrugged on August 28, 2013 11:49am
Whomever becomes mayor needs to examine where the funds have been invested and what the terms for repayment or getting money back out are. For example, certain of the funds we have invested in as a City may be REITs that are hurting today but maybe expected to rebound in a reasonable period of time such that withdrawing money from them may be a bad investment strategy. Certain of the funds could be subject to “lockout periods” such that we as a city are stuck with the investment for a specific term. So, if you ask what the economy has to do with our current problem, the simple answer is everything. These are simply items that can’t be known by a candidate prior to day 1.
As for the plans to switch to defined contribution, which I support, or bonding to cover the debt, which I don’t, you need a dynamic leader to carry out those proposals. You need someone who can actually negotiate with the unions or lenders on those points. Senator Harp is that person.
Again, every idea is great on the NHI blog but implementing an actual strategy takes time and effort. To msstratton, bonding - as much as I hate it - might be a good idea if it could be done expeditiously before rates rise further. Unfortunately, I don’t see it being a good/decent strategy if the bonding rates are above 4.5%.
posted by: Webblog1 on August 28, 2013 11:58am
Payment In Lieu Of Taxes (PILOT).
State payments primarily for colleges, universities and hospitals to localities is a none starter, DOA, dead on arrival.
If this was such a good idea, you can bet Destefano has already tried and failed.
Henry needs to frame a new argument around the large number of non-profits paying a very low percentage or none at all. New haven has hundreds of nonprofit buildings on the grand list which needs to be verified by personal contact visit, which visions government solutions, the city assessors contractor for revaluation in 2011, did not perform.
Henry or the next Mayor will have to reassess the city’s spending and bonding practice which has escalated each year for the last twenty years under Destefano.
Henry or the next Mayor will have to reduce its reliance on rental and services (contractors) which exceeds 50M in the 2014 budget.
Henry, Toni, Justin or Kermit will have to clean up the mess in their own back yard before seeking relief from the broke @$$ State of CT.
posted by: Noteworthy on August 28, 2013 12:00pm
Reality Check Notes:
1. @Atticus Shrugged - Nobody expects Toni Harp or any candidate to have a magic bullet. But what should be expected is for Toni Harp not to have to “find out how this happened” and then talk to somebody who at best, is a marginal state treasurer with dubious results. BTW, what happened here, happened at the state level under Harp. They didn’t pay in enough and had benefits that are rich along with headcounts that are too high.
2. Just as a reminder - Harp conveniently forgets to say she and her friends borrowed $2 billion to shore up the teacher pension fund in 2007 to put in the stock market which during the succeeding years lost massive amounts of money. That triggered another massive $240 million infusion when Malloy entered office.
3. Listening to Toni Harp talk about issues she doesn’t understand and listening to her tales of Hartford awesomeness, is like reading a fairy tale, where she’s the fairy godmother who zaps all the bad stuff away.
4. Face it - she is a blue Sarah Palin.
posted by: robn on August 28, 2013 12:05pm
That kind of apathy is exactly why our congressional delegation has allowed PILOT to remain funded below the legal requirement for so many years. That’s why New Haven doesn’t need a Mayor Harp.
posted by: NewHavenTaxTooHigh on August 28, 2013 12:09pm
The statement below really sums up well why the City of New Haven can not afford to elect Harp.
Asked how she’d deal with the pension problem, Harp said, “First, I would really try to understand what the problem is and where it started.” She said she’d look at why the pension fund investments are underperforming: “What will get us at least the best return on what we haven?”
She just doesn’t get it. It’s shocking that she’s been able to progress this far into the election process.
posted by: Edward Francis on August 28, 2013 12:23pm
Elm City Lifer just a comment on your question concerning the Chairmen of the Policemen & Firemen’s Retirement Fund. The Board consists of two police commissioners, two fire commissioners and a representative from the police department and the fire department. The commissioners are appointed by the Mayor (he is ex-officio member) and Police Local 530 and Firefighters Local 825 choose their representative. The Chairmen of the Board is open for nomination each year and the Board members themselves control the vote. It is a credit to James Kottage that he has been re-elected several times by board members who feel very confident about his leadership. The Comptroller of the City of New Haven is clerk of the board. Members of his staff coordinate the pension records.
posted by: FacChec on August 28, 2013 2:50pm
At this stage of the campaign I have no pony in this race.
Point of fac:
Many of the commenter’s here seem hell bent on trashing every Toni Harp quotes that appears in any campaign article on the NHI. While this is an allowable practice, I am perplexed because it is difficult to determine just who it is that you support for Mayor and more importantly, what are your candidate’s virtues.
Of all the campaign reports that hit the NHI, many of you simply extract the point(s) related to Harp, trash her position and ignore all others, far to obviously.
Do you really think your dislike of Harp will change the minds of any other voters?...I think not. On the other hand, if you were to write the virtures attributed to your candidate, I would give that more weight and consideration than the rants about Harp coming from the same set of bloggers on this site.
I’m just saying.
To the point of the article, neither candidate is projecting a valued idea on how to cure PILOT or the pension problem in New Haven. Hamden, the closest city to New Haven, seems to be taking a proactive position by adjusting their budget departmental allotments from others, to increase the pension contribution. Something that has been long ignored in the Hamden past.
None of New Havens candidates seems to wants to take the proactive stance and take the poison pill position we inevitable will have to swallow.
Until a candidate is willing to take the unpopular political position, the campaign will remain one for the least desirable, and one for whom you have not declared.
posted by: HenryCT on August 29, 2013 8:57am
Shall we talk about who is greedy? What shall we do about the really greedy ones?
1. the 1% that are accumulating wealth at record rates while all the main streets, workers and small businesses get the shaft.
2. the manufacturers of killing machines and the war department which take 57% of the federal budget while education, transportation, health, environment, veterans, etc., together share what remains.
Yes, let’s point the finger at who is greedy. Anyone who is interested in saving New Haven and all the other cities better deal with where the real money is.
posted by: anonymous on August 29, 2013 9:50am
HenryCT, I agree, but change starts locally. If what you say is true, why is New Haven exporting so much of its money and jobs to wealthy places like Guilford? City Hall didn’t have to cut dozens of entry level maintenance workers living in places like Newhallville so that we could spend more money on benefits for staff who live in the suburbs. But we did over the past 10 years. The State didn’t have to cut transportation and build wider highways. But it did.
The answer has to do with power: who finances the campaigns? As the NHI revealed, over 80% of Senator Harp’s money comes from out of town; meanwhile 8 out of every 10 dollars raised by Carolina and Elicker comes from New Haven proper. Where does the money for DeLauro, Murphy, or Malloy come from? Progressive voters know that you follow the money and the other things will be fixed.
posted by: SaveOurCity on August 29, 2013 2:57pm
Although I concede that our defense dollars are not wisely spent, you should really do a basic fact check prior to throwing out numbers.
Defense is not 57% of the budget, it was 17% of the 2013 budget. You can go to see this by going the the Office of Budget and Management website;
and pulling up table 8.4. Using the 22.7 budget outlay number (this table is measures as a % of GDP) you can also see that Social Security will be 22% of the budget spend this year.
And of course, the most frightening number is $223 billion in interest payments by the fed gov’t this year. Or - - $719 of INTEREST for very man, woman and child in the entire US.
posted by: win win on August 30, 2013 9:30pm
The majority of pension plan problems stem from the Great Recession (largely induced by a deregulated Wall Street gambling & overreaching). Because this crisis goes well beyond the local level we should be advocating state and national solutions, as well. But even though the “crisis” is bigger than any of these candidates, it will be up to one of them to tackle on the local level. Who is best positioned to do so effectively? That remains to be seen, but I would hope the people will have a say.
Looking across the globe today it ought to be obvious that austerity does not produce prosperity. Yet nice liberal politico wannabes seem to make veiled austerity-in-organic-sheep’s-clothing (e.g. squeezing workers already on the brink, gutting retirement security while asking nothing of the well-to-do) their first priority, rather than seeking additional revenue and investments which would require having the guts to stand up to rich and powerful players. Harp’s lack of a plan is disappointing but I appreciate her willingness to at least admit the complexity of these situations rather than toss out soothing, slick, content-less bullet points.
However, we need more than slick bullet points, 75 point wonkadoodle plans pulled out of you-know-where, OR a lack of a plan. We need solutions derived from solid analysis of the problem with input from the people effected.
WE are the people effected. That’s our money - our money as taxpayers who pay public worker’s salaries. Our money as public workers who pay into our retirement plans in good faith. Our money as the public when politicians gut pensions and leave retirees to subsist on welfare.
“Pinching pensions to keep Wall Street Fat & Happy”