Thursday, December 12, 2013

Charlie Tygards says Metro is Kicking the Can Down the Road on Metro's Pension Liability

by Councilman Charlie Tygard

Charlie Tygard
Last month, Mayor Karl Dean and Finance Director Rich Riebeling floated an idea to sell $200 million in bonds and invest the proceeds into Metro’s long-term pension fund. The principle was “buy low – sell high”. The Administration argued that with bond rates at near all-time lows, Metro Government could sell the bonds at a favorable rate, invest the proceeds in a rising stock market and benefit from the difference.

As a point of information, actuarial studies estimate Metro’s current pension shortfall at nearly $400 million, but also estimates Metro is around 90% funded. A pension fund over 80% funded is considered sound. It is also interesting to note that the City of Detroit, currently bankrupt, was deemed solvent and viable as late as 2011.

The overlooked point in this argument is potential risk, ie gamble, for taxpayers. As long as the economy and stock market is strong and growing, no problem. But the problem arises in times of economic crisis, such as 2008. It is in the tough times where the argument for this type arrangement falls short. Several cities in California gambled on this method and are now in bankruptcy.

I would ask the question – Would you borrow money to take to Las Vegas and gamble on a high return? Any prudent, financially savvy individual wouldn’t even hesitate in answering “no way.” Since there was no 100% guarantee that Metro would come out ahead on the deal, the Administration, at the urging of the Metro Council, did the right thing to pull the plug on this issue quickly.

But unfortunately, the issue didn’t end there. Based on the red flags raised by the Finance Director concerning the pension fund shortfall, I filed legislation to transfer $10 M from our Unappropriated Fund Balance (Metro’s savings account, commonly called the “rainy day fund”) to the Pension account. Such a transfer would have still left Metro comfortably above the mandated level of 5%.But such a transfer would have been a powerful message from the Metro Council that shoring up our pension account was a top priority.

Eventually though, based on strong opposition from the Administration which cited such a move a “ill-advised and not financially prudent,” the resolution was soundly defeated. In my viewpoint, the Metro Council essentially did what Congress does – kick the can down the road for another day.

Charlie Tygard is a Metro Councilman-at-Large having served in that position since 2007 and now serving his last term. He previously served in the Council representing District 35 from 1989 to 1995 and again from 2002 to 2007. He is an accountant and owns Accurate Tax and Bookkeeping Service. 

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