Philadelphia is Out of Cash; Pension Spiking in California; Massive Tax Hikes in Oregon

Pension plans are touching a nerve. Numerous people sent me links to Pension Calculus Draws New Scrutiny.

A California dustup over large pension payments is shining a spotlight on the practice of spiking -- increasing a salary just before retirement and boosting the lifelong payout.

Pete Nowicki had been making $186,000 shortly before he retired in January as chief for a fire department shared by the municipalities of Orinda and Moraga in Northern California. Three days before Mr. Nowicki announced he was hanging up his hat, department trustees agreed to increase his salary largely by enabling him to sell unused vacation days and holidays. That helped boost his annual pension to $241,000.

Mr. Nowicki's situation isn't unique. Contracts that permit a jump in salary just before retirement -- boosting the pension payout -- have been around for years. But as tough times are putting more scrutiny on public pensions, Mr. Nowicki's case has sparked particular anger from colleagues and local residents. Some recently demanded an explanation from the department trustees and others have lobbied the Orinda council to divert funds away from the fire department.

The practice is getting more attention amid growing concerns about the sustainability of guaranteed pension payouts for public employees after brutal market losses last year in public pension funds.

In addition to drawing his pension, Mr. Nowicki currently is working for the fire department as a consultant at an annual salary of $176,400 while the department searches for his replacement.

Huge Tax Hikes In Oregon

Oregon Governor Ted Kulongoski has not yet gotten the message that voters are fed up with taxes. It's time he learns a lesson. When he is up for re-relection vote the clown out of office.

Inquiring minds are reading Kulongoski signs tax bills.

By signing three new tax bills, Oregon Gov. Ted Kulongoski may have ensured that Oregon voters will face a January ballot measure that pits businesses against unions and consumers.

Kulongoski signed measures that will raise the state’s corporate minimum tax, raise taxes on the state’s wealthiest individuals and raise income taxes on businesses.

One bill increases the minimum tax businesses will pay annually from $10 to $150. About two-thirds of Oregon corporations currently pay the $10 minimum tax.

Another measure raises tax rates on businesses making more than $250,000, from 6.6 percent to 7.9 percent. The rate will last for two years, drop to 7.6 percent, then return to 6.6 percent for most corporations. All money collected above the 6.6 percent rate will help fill Oregon’s reserves beginning in 2013.

The third bill raises personal income tax rates on Oregon’s wealthiest individuals and joint tax-return filers for the next three years. The current 9 percent tax rate will jump to 10.8 percent for individuals earning more than $125,000 and joint filers earning between $250,000 and $500,000. Those earning more than $500,000 will pay 11 percent.

“We are asking corporations and the wealthiest Oregonians to pay their fair share to help protect the vital services we all depend on: education, health care and public safety,” Kulongoski said.

A group calling itself Oregonians Against Job-Killing Taxes has hired a signature-gathering firm led by former Oregon Republican Party Chairman Kevin Mannix and tax activists Russ Walker and Ross Day. The group wants to refer the measures to voters in January. The deadline for 57,000 valid signatures is Sept. 25.

If you live in Oregon, please sign the Oregonians Against Job-Killing Taxes and vow to vote Ted Kulongoski out of office. Tax hikes are exactly the job-killing mechanisms no one needs.

Philadelphia Stops Paying Vendors

Blaming pension plans, Philadelphia Halts Payments in Crunch.

The government of the nation's sixth most-populous city has stopped paying its vendors and suppliers, citing a cash crisis.

Philadelphia Mayor Michael Nutter on Friday blamed the drastic move on the failure of the Pennsylvania legislature to act on his request for authorization to raise the city sales tax and change the formula for the city's contribution to its employee pension plan. Mr. Nutter said these items are necessary to help close a projected city budget deficit of $1.4 billion over the next five years.

The city has about $197 million in funds, and with the suspension of vendor payments that money should last through the end of September.

The solution to the California crisis, the Oregon crisis, and the Philadelphia crisis is not higher city sales taxes or higher pension plan contributions. Citizens are over-taxed as it is.

The solution is lower benefits, the immediate termination of all defined benefit pension plans for all future government employees, a renegotiation of the pension contracts for existing workers, and the canceling of needless government programs.

Raising taxes for the benefit of overpaid government bureaucrats is exactly the wrong thing to do. If unions disagree, then a Philadelphia bankruptcy is the best option for Philadelphia taxpayers. Obviously the same applies to numerous cities in California and across the nation as well.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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