The recent article in the Salem news highlights a little known situation which, while not unique to Peabody at all, still will have a severe impact on our near-term, and long-term fiscal viability.
Salem News: Retirement Assets dip as market fails
Now, I will begin this post with a big admission... I don't know much about this... not much more than I read in the SNews.
The story in a nutshell - and feel free to let me know if I am getting this wrong somewhere...
Cities are required to fund the accounts that they plan to use to pay for employee retirement. However, they don't actually put in the $50 each week that employee X and Y are going to get in 10 or 15 years.
No. That would be logical. And safe.
So the Cities PROMISE that they will have the money for the retirees WHEN THEY RETIRE... but not before. In other words, the City will use these funds to do as they please (now I am sure that some is set aside for the retirees) but they don't need to come up with it until they actually retire.
This was a good scheme... until somebody noticed (or maybe someone retired somewhere and the City didn't have the dough?).
So the powers that be enacted a deadline (2028) where by the City must be fully funded for all retirees.
But the Cities didn't really want to put all their (our) money in the retirees bank accounts... they wanted to Play the Market and make a profit so we would have more funds to spend on City needs.
Unfortunately things are not so pretty in the market... in fact the S&P 500 has averaged -1.59% since 2000.... and is down -37% for 2008.
So... in order to still be able to meet the 2028 deadlines, all the Cities and Towns are going to need to be putting in even more tax money into these retirement accounts to make up for the bad investments made over the past few years. This is going to result in EVEN LESS WORKING CAPITAL FOR THE CITY.
Again, this is not problem unique to Peabody, nor was the fancy financial solution... in fact, it probably kept our level of taxes lower and services higher over the past several years... but it just adds one more straw to the camels back... and the sag is already starting to show LOTS of strain.
Farewell Dark City....
11 years ago
10 comments:
OG says...
right you are PI--more potential bad news for Dark City and most other cities/towns...we are staring down at the bottom of the barrel these days...and there really isn't a damn thing we can really do about it!! there seems to be some debate as to whether we are in a recession or a full fledged depression...OG happens to think that we are in a depression right now even though things may not perfectly the 'formula'...there is no light at the end of the tunnel...not even a candle flicker...I wonder how really safe our social security money is ????
I may have painted this a little too darkly... at least from the standpoint of it being Sinister...
It was (is?) the accepted practice... in fact, this is the best practice for these types of funds.
I have, in the past, derided some folks for thinking 'small' (ie: thinking home finances, not big business) and this might be one of those cases.
I am not saying I am wrong here, nor am I saying I am right... simply that this is going to become a bigger deal than we all knew about.
The baby boomers were lucky to grow up during the apex of our country's history, but their retirement years will be hell.
By 2015, more than 70% of Americans over 65 will live below the poverty line.
The country will not have a sustainable economic recovery until the aging boomers are substantially out of the system, which is two decades away.
Big business, home finance, it all boils down to common cents (sense). Pennies turn to nickels,nickels turn to dimes... :)
Wallet Watcher? Is that You?? I'm happy you've returned! Please join us all over at The Patriot too!
Hi WW:
I had a feeling you might still be around... and I'm glad you jumped into the conversation!
And, yes, those mea culpa comments were directed at some of my previous behaviors which were directed towards you and some others.
I just wanted to point out that I too am guilty of thinking at the wrong scale at times.
Please come and comment more!
old friend, been there all along
P.I. same goes for this site
Interesting link here, P.I. please make it clickable.
Peabody had NO shovel ready projects worth the monies from the stimulus OR had no foresight to apply for them.(imo) Either way I just thought this was an interesting find.
http://www.stimuluswatch.org/project/by_state
Here is the clickable link.
www.StimulusWatch.org
FYI - a more accurate list can be found at www.mass.gov/recovery. Need to click on the link for Task Force Reports and scroll down for the reviewed and un-reviewed project lists.
Back to subject...
If every one else jumped off a bridge would you?
I sure as hell hope that the city did put some of the money in certain higher yielding safer accounts and not solely in the market. Even the lowly average home budget keeper knew the market was and is a gamble. We've been told forever to not keep our eggs in one basket. Did the administration heed those words or did they know better?
P.I., per your response......"It was (is?) the accepted practice... in fact, this is the best practice for these types of funds".....the word best was in bold. Is it really the best way to go? Gambling funds needed for the future? We've know there are age related numbers to portfolios for the lil guy why was it the best way to go for the city to GAMBLE funds of those that would count on them. Acceptable isn't necessarily right, just going along isn't right, especially from someone that held a position that was touted during the first running as a banker of sorts.
O.G., Because you, at this time cannot see the light near the tunnels end does not mean it isn't there :) A little faith, look into the eyes of those that do not know or accept defeat. Better days are for sure ahead of us. Maybe the old part of your moniker just isn't looking far enough ahead :)
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