Andover Townsman, Andover, MA


September 20, 2012

Column: Underfunded pensions are quarter-billon-dollar secret

For decades the town managers and selectmen have written blank checks for the employee retirement benefits they negotiate in contracts.

Retirement benefits are tied to employee wages and over time, as wages increase, the benefits increase through cost of living allowances, promotions, longevity increases, and additional education achievements. The town manager and selectmen have decided that rather than pay for all the retirement benefits when they are earned to postpone paying for more than half of them until they are due, essentially shifting today’s benefit burden to future taxpayers. This process is called PayGo.

This, of course, means the future liability or debt gets larger every year, but it also means more money is available in the current year to fund new projects like a youth center, a new town yard, or a boathouse on the Merrimack. It’s an easy choice until the benefits have to be paid in a future years. As long as the taxpayers don’t notice the growing debt it’s not a problem until the employees want their benefits paid.

This is similar to paying only half of your monthly mortgage payment and spending the “savings” on an annual Disney World vacation. It’s an easy decision with the kids, and much more fun, but your mortgage grows larger each year. As long as the bank doesn’t notice the growing mortgage balance it’s not a problem until they want their money.

Until recently towns did not report these growing liabilities ANYWHERE. They weren’t “required” to report them, so even though they were real and they existed the thought process was, why upset the taxpayer?

The problem with my analogy, is that unlike taxpayers who get information on town financials at the discretion of the town management and the politicians, banks actually know if you’re not paying your full mortgage every month.

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