Aberdeen’s Death Spiral

If you’ve been living in Aberdeen a while, have you noticed a change?

Have you noticed that big projects never seem to get done anymore? Transit station, swim club, Glass Anchor, senior housing, everything seems to be in limbo.

Have you noticed the money problems getting worse? That Aberdeen no longer maintains a rainy day fund, that its credit rating has been cut, or that it might, on occasion, need to raid the public library’s coffers?

Have you noticed retirees increasingly leaving Aberdeen to escape the high property taxes?

Have you noticed more vacant properties in the area? (Ten more sheriff sales scheduled for September.)

Have you noticed certain programs getting cut and the money never seems to be restored?

Have you noticed few seem to care and nobody does anything about it?

This is what a death spiral looks like. It starts slow and nobody cares. It speeds up and everyone pretends someone else will fix the problem. And then . . . collapse.

Need more evidence?
2006 Pension Contributions:
Police and Firemen - $238,883
Public Employees - $51,558

2013 Pension Contributions:
Police and Firemen - $945,052
Public Employees - $248,170

Percent Increase over 7 Years:
Police and Firemen - 396%
Public Employees – 481%

2007 Employee Group Health - $810,000 (2006 numbers unavailable)
2013 Employee Group Health - $1,640,804
% Increase over 6 Years – 203%

>>> Read more!

The Fallacy of Guaranteed Pensions

"Don’t place your trust in princes" - Psalms 146

When the Bernie Madoff story first broke, the public was incredulous that one man could steal so much. Then, as details emerged, the public was incredulous that otherwise intelligent people could be so stupid when it came to their lifesavings. How could anyone believe a financial guru who claims to deliver consistent returns regardless of market conditions?

Well, I could think of a whole bunch of people who act just like that. Specifically, the public sector unions. Public union workers spend hundreds of millions of dollars a year to elect political halfwits who know nothing about finance but promise lavish retirement benefits to be delivered long after their terms expire. Then, for reasons unknown, these government employees, who should know better than anyone, plan their entire retirement around these empty promises from unaccountable politicians long gone.

Here’s the list of former Aberdeen employees earning a government “guaranteed” pension. The dollar amounts don’t include health benefits, Social Security, Medicare, Medicaid, or any other program.

Here are some quick tidbits –

• In the Matawan-Aberdeen school district, for every dollar of salary going to a school employee, the state is spending 40 cents for a district retiree
• Including Aberdeen’s portion of the school district and library, the state will spend over $10 million dollars in pension payments this year. That compares to a $15 million municipal budget and $9 million municipal tax levy
• In addition to the pension payments, for every 5 school district employees on the state healthcare plan, so are 4 district retirees

Ah, you say, we don’t have to worry about that because the state manages a pension fund.

Well, about that fund.

Pension funds are supposed to work as follows – Each year they get a little larger so that the investment income earned is enough to cover payouts without endangering the principal. Unfortunately, the state pension plans are designed to fail for several reasons.

Using the Teachers Pension and Annuity Fund as an example, consider the following –

• Pensions are based upon salaries, which, over the past decade, have risen far faster than inflation or the market
• In the drive for smaller class sizes and one-on-one instruction, more teachers means more pension liabilities
• When the market's down, the fund has to sell assets on the cheap to fund benefits, meaning the fund gets smaller and goes into a death spiral as it will never earn enough to payout benefits
  
• Pension managers are pushed to assume higher levels of risk to meet the state's unrealistic projections
  

In 2000-01, the TPAF paid out $1.33 billion in benefits. In 2009-10, the payout was $3.08 billion, a 230% increase in just nine years.

During that same time period, the fund itself has shrunk from $31.05 billion to $25.89 billion. In other words, over a nine-year period, the ratio of assets to one-year payouts, has dropped from 23.35 to 8.41.

The dramatic fall in pension assets occurred despite a sharp rise in pension contributions, an increase from $371.6 million in 2000-01 to $658.8 million in 2009-2010.

As the chart below shows (all numbers in billions), even assuming rosy projections, as the state likes to do, that contributions will increase 8% a year, net return on investments will consistently run a little over 5% a year, and pension liabilities, in contrast to history and common sense, will only increase 4% a year, the Teachers Annuity and Pension Fund will go bankrupt in under 15 years.

Year	Withdrawal	Contribution	Assets
2010	3.08	0.66	25.89
2011	3.2032	0.7128	24.6941
2012	3.331328	0.769824	23.3673
2013	3.464581	0.83141	21.90249
2014	3.603164	0.897923	20.29238
2015	3.747291	0.969757	18.52946
2016	3.897183	1.047337	16.60609
2017	4.05307	1.131124	14.51445
2018	4.215193	1.221614	12.24659
2019	4.3838	1.319343	9.794465
2020	4.559152	1.42489	7.149926
2021	4.741518	1.538882	4.304786
2022	4.931179	1.661992	1.250838
2023	5.128426	1.794952	-2.0201
2024	5.333563	1.938548	-5.51612
2025	5.546906	2.093632	-9.2452

The unions’ response will be to declare unfunded pensions and health benefits are the state’s problem and the state must fix it. In other words, the unions will turn to the very political process that put them in the whole in the first place. Imagine what will happen if they get their wish. >>> Read more!

Aberdeen's Inflated Pensions

Riddle me this:

• Whose retired chief of police has the highest pension of any police officer in Monmouth County?
• Whose retired town manager has the highest pension of any municipal administrator in Monmouth County?
• Whose retired township attorney has the highest pension of any municipal attorney in Monmouth County?

If you’ve answered Aberdeen Township to all of the above, you’re a winner. Unless, of course, you actually live in Aberdeen.

Pension costs in Aberdeen are skyrocketing. In the past two years, pension expenditures for policemen and firemen have leapt 147% from $238,883 in 2006 to $589,487 in 2008. During that same period, pension costs for personnel have ballooned 155% from $51,558 to $131,669.

Township officials have blamed the state for these astronomic hikes. True but it’s not the whole truth.

Retired Chief of Police, Joe Kelly, receives an annual pension of $104,034, more than any other retired police officer in Monmouth County.

Former town manager, Mark Coren, has an annual pension of $82,138, more than any other town manager in Monmouth County. Like Kelly, Coren also receives free medical for life.

Then there’s Mayor Sobel’s “close personal friend” and former township attorney, Norman Kauff. He gets $49,015 a year from his government pension.

Pension benefits are calculated by the following formula – (Years of Service) / (55) X (Average Salary of the Last 3 Years). Any town can easily game the system by simply inflating salaries during the last three years of service.

For example, Mark Coren’s average salary from 2003 thru 2005 was $145,679. That figure isn’t only 13% higher than Stuart Brown’s 2008 salary of $129,000, it also exceeds the current pay range of $95,000 -145,000 for a township manager. Mark Coren and the town council were able to augment his pension by simply expanding the township manager pay range to $165,685 and then reducing that cap after hiring Brown.

During Joe Kelly’s final years, he not only got a pay hike, he took another job, teaching a Criminal Justice course at Monmouth University. (On RateMyProfessor.com he gets top marks for being an easy “A”.) All that work, it’s no wonder he developed a reputation for taking power naps in his squad car. His average salary in his last 3 years was $148,620. The current salary cap for chief of police is $140,000.

Norman Kauff gets the prize for highest pension per hours actually worked. During his tenure as Hazlet’s “special counsel” he received the township attorney’s pension contributions, even though that role was being performed by another attorney at his then firm, DeCotiis, FitzPatrick, Cole and Wisler.

Next time the town council complains about pension costs, let’s hope they have the honesty to acknowledge their share of the blame. Then again, asking for honesty from this town council might be asking for too much. >>> Read more!