Thursday, December 23, 2010

Public Pensions and Bankruptcy

Prichard, Alabama:
This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry.

Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full.

Since then, Nettie Banks, 68, a retired Prichard police and fire dispatcher, has filed for bankruptcy. Alfred Arnold, a 66-year-old retired fire captain, has gone back to work as a shopping mall security guard to try to keep his house. Eddie Ragland, 59, a retired police captain, accepted help from colleagues, bake sales and collection jars after he was shot by a robber, leaving him badly wounded and unable to get to his new job as a police officer at the regional airport.

Far worse was the retired fire marshal who died in June. Like many of the others, he was too young to collect Social Security. “When they found him, he had no electricity and no running water in his house,” said David Anders, 58, a retired district fire chief. “He was a proud enough man that he wouldn’t accept help.”

I think Prichard is the canary in the coal mine here. The cost of public pensions is weighing heavily on budgets all over the country, and I think reform is inevitable. Promises made when the life expectancy was 70 are not affordable with a life expectancy approaching 90. More broadly, I just don't think we can sustain an economy in which people only work for 40 years out of a 90-year life. It may be cruel to cut off people who worked their whole lives in expectation of retiring at 60, but it also seems crazy to me that states and counties will have to stint on services or raise taxes to pay for the pensions of healthy people who have already retired. And that is what is coming -- just look at California. Or Prichard.

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