accounting

Inexplicable math in Taft-Carter’s Providence Medicare ruling

January 30th, 2012 at 4:51 pm by under Nesi's Notes, On the Main Site

Judge Taft-Carter’s decision in the Providence Medicare case on Monday contained this rather odd passage:

Moreover, the Court notes that $6 million in lost savings – although hardly a paltry sum – is less than 1% of the City’s approximate $1.5 billion in liabilities for non-pension post-retirement employment benefits. Immediate receipt of these alleged savings would not save the City from financial ruin.

That’s an apples-to-oranges comparison. The $6 million is how much the city projects it will save from moving retirees to Medicare in one fiscal year. The $1.5 billion is how much the city projects it owes them in health benefits forever.

Think about it: by Taft-Carter’s logic, the pension law passed in November had a negligible impact, because the $128 million it saves in the 2012-13 state budget is only about 1.8% of the old $7.3 billion unfunded pension liability. But the number people care about is the drop in the unfunded liability to $4.3 billion, a 41% reduction.

A more apt comparison would be how important the $6 million is in balancing Providence’s 2011-12 budget. If we take the original projected deficit for Providence – $110 million – the Medicare savings closes more than 5% of the shortfall. Or if we take the remaining deficit for this year – about $30 million – it’s equal to 20% of the shortfall.

If, on the other hand, Taft-Carter wants a number that’s comparable to the $1.5 billion unfunded retiree health liability, she would need an estimate of how much the move to Medicare shaves off that figure. It’s not clear to me if that figure is available, but it would be substantially more than $6 million.

An earlier version incorrectly described the reduction in the pension liability as 59% rather than 41%.


Sgouros: RI pension crisis caused by accounting, not shortfall

October 25th, 2011 at 10:56 am by under Nesi's Notes

If Gina Raimondo hadn’t come along, Tom Sgouros might be Rhode Island’s general treasurer today.

Sgouros, a liberal writer and performer, withdrew as a Democratic candidate for treasurer and endorsed Raimonodo in April 2010. But he continues to believe the current brouhaha over a pension crisis is overblown.

I spoke with Sgouros on Monday to get his take on the Raimondo-Chafee bill. The transcript has been lightly edited for length and clarity.

Let’s start with first principles. Do you think the pension funding issue is a serious problem right now, today, in 2011?

There is a pension funding problem. What makes it a crisis, though, is not the needs of the retirees or the agreements already set. What makes it into a crisis is the rules by which we are supposed to fund the pensions. And I’ve written a lot about how I think those rules are unwise, are insuring us against the wrong risks, and are just more expensive then what they need to be, and that’s what makes it a crisis.

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