Sometimes it seems that Baltimore is politically comatose. As this well written Sun editorial points out ("A wake-up call for the city," Feb. 8), real estate taxes are double that of the next highest municipality, income taxes are higher than any other municipality and at the legal limit, and schools and infrastructure are crumbling. We have a firmly entrenched bloated government bureaucracy which spends 20 percent of its budget on legacy costs and has $3.2 billion of unfunded pension liabilities. Desperate for income, its nickel-and-diming of citizens is legendary, with the latest example being the speed camera money grab.
Mayor Stephanie Rawlings-Blake could have coasted along the well worn political trail, talking tough about fiscal discipline and doing nothing, except praying that her own pension doesn't dry up. She deserves credit for bringing the fiscal issue into focus, even at the lofty half million dollar cost for a consultant's study.
The low hanging fruit in budget reform is the defined benefit pension which left the private sector over a decade ago. In today's economic system in our country, no financial entity can survive a 20 percent budget drain. Public employees have systematically lined their pockets over the years with unsustainable benefits, confident that their pensions are secure in spite of the fact that the promises were made by people whose interests were aligned with their own and who could never have justified them in real terms. When total compensation is put into present day dollars, they make almost double what private citizens make.
It would be interesting to see the PFM study and how the pension deficit was calculated. Most pensions are still in denial and are hiding the full extent of the bad news by using annual returns of 7 percent for their projections (comically, many have just revised downward from their traditional 7.75% returns). In the real world, pension funds have been getting around 1 percent for the last few years, and there is no realistic hope of return to 7 percent yields. If PFM is playing the same game as most pension administrators, the $3.2 billion deficit may be unrealistically low.
What is needed is immediate drastic pension reform to defined contribution plans, including restructuring of benefits for current employees. Yes, it's time for some of the tough love that the private sector has been experiencing for the last 20 years. What must be resisted is the typical political response, which was just enacted in Baltimore County, where politicians fleeced the taxpayers again by floating a giant bond issue to finance pension underfunding, guaranteeing decades of continued budget stress for county taxpayers and happy retirement for themselves. This problem is crystal clear and is the easy part of the necessary budgetary reform.
Problems such as the bloated city bureaucracy, crumbling infrastructure and schools, and outrageous tax burden are amorphous and harder to remedy. If Ms. Rawlings-Blake is serious about budget reform, she will go for the low hanging fruit of pension reform right away. Of course, such reform would impact her personal finances and dampen her political viability. Let's not hold our breath.
Gary Moyer, BaltimoreCopyright © 2015, The Baltimore Sun