157 million dollar bailout?

A couple weeks ago the Duluth paper published an update on appeals to the state from the Duluth Teachers pension planners to bail them out since they had run short of the funds necessary to pay for the pensions of retired teachers. In part this shortfall came from not reducing payments soon enough as the economy tanked a mistake that fell only on the shoulders of the pension board of directors. The story said that the state had decided to plug the hole to the tune of six million dollars. That almost got my hackles up but I couldn’t tell if the payment was a one time payment or not. I didn’t mind a one year cash infusion but I wondered if the state was planning to expend this money for many years into the future. I was too busy to call and ask what the situation was but I had planned to post my question on the blog.

Now I know the answer. It came in the DNT when it republished the St. Paul Pioneer Press’s editorial on the subject. The answer is yes. For each of the next 25 years or so the state has agreed to plug DFRTA’s hole to the tune of $6.3 million annually. That means that our retired teachers could get a $157 million windfall to cover the poor decisions of their pension plan. Other pension plans will be getting similar bail outs and we will just have to wait to see what happens to the mother of all public pensions in Minnesota, PERA, with a projected $16 billion shortfall.

“…the remedies should come with a loud note of caution for the public: Public-employee pension funds are under the influence of politicians who, as they apply the remedies, have the power to do favors and solve problems with somebody else’s money: ours.

The Legislative Commission on Pensions and Retirement, which also approved $6.3 million per year in state aid for the plan for Duluth teachers, got what amounts to a reality check in testimony from retired Rockridge Elementary Principal Tom Threinen. He told lawmakers the additional contribution costs for the district will result in the loss of at least five teaching positions and make it harder to reduce class sizes and increase offerings, as both the Duluth News Tribune and St. Paul Pioneer Press reported.”

I’ve commented before about pension plans most recently on the red ink in Illinois. One of the faults with democratic elections is the emphasis they put on today at the expense of tomorrow. In the last two decades of the war declared on moderate “RINO” republicans the consequence is that sane fiscal voices like Congressman Jim Leach of Iowa and many others have been killed off in GOP primaries by simple minded, short term strategists who have opted to push “pure” ideologically driven and dreadfully impractical candidates. The vacuum this has left in the vital center of American politics has fallen to Democrats like President Obama. Its still a huge vacuum.

Its hard to give any credit to the current GOP minority in the legislature because there aren’t many centrists left. Their current leaders describe the remnants of the Republican side of the legislative aisle as the “grownups.” I wish.

Decisions like this one to bail out overly ambitious and unsustainable pensions give all such pension boards an incentive to game the system knowing that poor and incautious investing could be bailed out by taxpayers. Its simply not fair and its not sustainable.

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