Pensions and budgets, and cuts. (Oh my).

On the heels of all the CRC goings-on down in Salem (and in various council chambers in Vancouver and Oregon City), TriMet yesterday tossed a little gasoline in the fire with some dire predictions for transit levels a decade hence. While its outlook for FY14 is essentially flat–no service restorations, no further cuts, depending on how things go; it made the claim that unless further “contract reform” were to take place, it might find itself in the position of only being able to offer 30% of the service hours that are currently offered, in 2025.

Contract reform, of course, being a nice way of saying “pay and benefit cuts for union personnel”.

TriMet also noted that without additional funding, no MAX expansions beyond Portland-Milwaukie are likely any time soon. How an expansion of the Yellow Line if and when the CRC is built would be affected is unclear–though most of the new service would be in C-TRAN territory, and the expectation is that such service would be funded by C-TRAN (a prospect which is not greeted warmly by many Clark County residents).

This claim has gotten quite a bit of pushback. ATU 757 now has a new website to contest the agency’s PR offensive (if nothing else, it’s good to see the union engaging in a little PR of their own; something that was missing under Jonathan Hunt’s tenure as union pres). MAX FAQs reprinted a blistering critique of the agency; Al continues his criticism unabated, and OPAL is skeptical (Facebook page). Cascade Policy Institute, which has been making similar claims for years now, has yet to chime in on the day’s events, but we expect their indic?v? tibi sic any time now.

And as always, Portland Afoot and Joseph Rose are on top of things.

So what to make of this?
Heck if we know.

The pension crisis is real…

Ignoring the particulars of TriMet, the “pension crisis” is a real problem. According to estimates, the total of unfunded state and local pension liabilities in the US is nearly $2 trillion. This doesn’t include Social Security, Medicare, or private-sector pensions.

A lot of this is driven by a combination of health care costs, Baby Boomer retirements, shrinking tax bases, boondoggles, and financially-unwise actuarial commitments; but many public agencies have long not bothered to fund pension debt, instead paying it out on as a pay-as-you-go basis. In some cases, generous pension were awarded to public employees in lieu of current pay/benefit increases–a political win-win in that employees’ effective compensation increases, and administrators don’t have to raise taxes or cut services (at the time) to cover it. TriMet’s issues are, in many ways, not unique. The City of Portland has $3.3 billion in unfunded pension obligations–a figure that dwarfs TriMet’s deficit, though Portland has a bigger tax base to draw from. PERS has been a drain on local government coffers for quite a while, as many retirees are collecting generous benefits awarded during the go-go 1990s, when the fund was making guarantees of 8% annual returns and such.

Whether these benefits are deserved or not is largely irrelevant, as is the question of whether or not current taxpayers should be morally on the hook for debts incurred by prior generations. They represent contractual obligations of the agencies in question–and under current law, the only way for agencies to get out of them is via municipal bankruptcy. (Some cities have gone through Chapter 9–a proceeding where retirees generally do get to take a haircut, as bondholders are generally given first priority). And communities that have large mountains of such debt may face the prospect of a public services death spiral that may accelerate such an outcome–as voters decide to either move to lower-tax locales, and/or refuse to vote for taxes on the grounds that such taxes are no longer paying for public services. The Beaverton School District, for instance, is seeing its PERS payments skyrocket–but hasn’t been able to pass an operating levy in recent years–many taxpayers (including many parents with children in the district) object to a higher tax bill without corresponding improvements in service.

In some ways, many local governments will have increasing difficulty without intervention (good or bad) from Uncle Sam. Such intervention could take many forms, including a) further health care reform (particularly reforms that drive down the cost of medical care, and which replace various Cadillac employer plans, something that Obamacare did not do); b) a federal bailout of distressed local governments (Uncle Sam can raise taxes uniformly, and can print money); c) giving retirees a haircut via legislative act (while the states cannot impair contracts via legislation, Congress can). At the present time, there is no political consensus for any of these; OTOH there have been more whispers of inter-generational sniping in national politics–it wouldn’t surprise me if in a few years, more and more young political aspirants start demagoguing about transfers of wealth to retirees. Such commentary is already not uncommon on the topic of Social Security, after all.

…but how bad is it really for TriMet?

Back to TriMet. A big problem which the agency has had, for the past few years, is a lack of transparency–which makes it easier for the agency’s critics to doubt its official line, or even accuse it of rigging the numbers. It won at the ERB last year by essentially pleading poverty, and claiming that the ATU’s offer would devastate it (and its riders); it could be trying to build a public case for another round of cuts in the next contract. Or, there could really be a wolf among the sheep.

Another question for the agency is–how long has it been concerned about the issue? A cynical person might note that TriMet downplayed its financial issues until PMLR funding was secure and construction underway–a good question would be what has changed between 2009 (when the Great Recession was underway, and the financial meltdown of 2008 fresh on everyone’s mind) and now. (Other than the occupant of the general manager’s chair; four years ago, Neil McFarlane had yet to be promoted).

Another important line of inquiry: what forecasts, economic and population, drive the model? Depending on how one thinks the economy will do in the next ten years, what will happen to the metro area population, what will happen to the price of gas, and how will full implementation of Obamacare affect healthcare costs, may have a big impact on TriMet’s finances. Obviously, nobody can predict the future with any certainty, but some of the assumptions I have to question–particularly the assumption that healthcare costs will continue to rise exponentially. Were that to be the case, I would expect that at some point in the near future a political crisis would result, with harsher measures than Obamacare being taken, before the healthcare sector is permitted to swallow the entire economy.

And of course, there is the equity question: Assuming this is all true, who should bear the brunt of this? Taxpayers? Riders? Current operations workers (whom are being targeted with benefit cuts)? Former workers (who, as noted above, are largely untouchable absent a bankruptcy or Federal intervention)? Management and non-operations staff? Vendors, suppliers, and contractors? Right now, most of the cuts have been borne by riders–who are experiencing worse service and higher fares–and by current employees (union and non-union). TriMet has limited power to raise taxes to offset increasing costs.

A few other questions, for thought:

  • If some community were to withdraw from TriMet and form their own transit district (like SMART did)–do they get to start fresh with a clean balance sheet? Or would the be required to shoulder a pro-rated share of TriMet’s pension obligations? And pursuing that line of questioning to its conclusion–could the agency be whittled down to nothing but a bag of IOUs?
  • I wonder who the audience is, for TriMet’s remark that future capital projects might be imperilled. For many of the agency’s critics, who view such projects (rail in particular) as pork-barrel politics rather than sound expansion, this is would be viewed as a feature and not a bug; I doubt that very many riders or taxpayers place a high priority on future MAX expansion, particularly during an age of relative austerity. That this was explicitly mentioned is a thing that makes you go hmmmm….
  • This might be the start of a (long overdue) conversation on just what TriMet’s purpose really is, and what goals it should be focusing on. Putting accusations of patronage aside–TriMet is tasked (as part of overall regional strategy) with various things such as reducing greenhouse gasses, social service to various disadvantaged communities (many of whom are expensive to serve), assisting with land use tranformation, and other goals only tangentially related to moving people around the city. While many of these goals are laudible; should TriMet and its limited operational base be serving so many masters, or should deployment of services for reasons other than efficient transport be funded elsewhere?

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