As the rhetoric heats up about how devastating the reforms put forth by Governor LePage are and how these reforms seek to “impoverish” state workers (according to an email from the President of the MSEA), Prichard Alabama offers up an example of what can happen if real reform does not take place.
Now, Prichard Alabama is a bit of an extreme case, the city has filed for bankruptcy protection twice .. something states cannot legally do right now .. and they were warned that if they took no action, their pension fund would run dry. It did and they simply stopped sending out retirement checks to their retirees. That move, the failure to continue to send out retirement checks, has led to personal bankruptcies and other financial calamities for those who earned the benefits and were counting on them.
Why is Prichard Alabama a good example instead of merely an aberration? Our states as well as our cities and towns are struggling with their un-funded pension obligations all over America. The state of Illinois, as an example, is borrowing to fund its pension, hoping (gambling) that the markets will rebound enough that it will allow Illinois to payback the loan principle and the associated interest.
Is Maine is this shape with its pension fund? No, it is not, but that is not to say that the pension fund is not in trouble. Maine faces a 4.4 billion dollar un-funded and the payments to fund that liability, which is Constitutionally bound to be paid off in 17 years, will soon reach over 800 million dollars in annual payments, almost as much as we currently spend to fund public education at the state level.
The real issue is this. Republicans in Washington DC are working on legislation that will allow for the states to file a pre-arranged bankruptcy, something that is currently not legal. If this measure passes and it is starting to gain some Democratic support, it will specifically target relief from under-funded pensions. This legal process will allow states to alter their current obligations and that will have significant repercussions on a broad scale.
First and foremost, this will change benefits for current retirees. Secondly, it will effect future retirees. Lastly, maybe most importantly, this will send shutters throughout the financial markets as it will allow states to walk out on their bond obligations and even if it is only a restructuring of the debt, this will drive up interest rates for the states and make borrowing even more costly for capital improvements.
Is Maine headed for the same fate as Prichard Alabama? Not likely, but Prichard is a good example to examine and recognize as a way not to do business. Putting off until tomorrow what we should be doing today is what has gotten Maine and this country into the mess we are in.
Bankruptcy may not be in Maine’s immediate future (we are not Illinois afterall), however, without significant reform, especially in our pension fund, we are looking at some pretty ugly options in the next few years.