From now on perhaps the small city of Prichard,

Alabama, will be known as Ground Zero for the

nationwide Screw the Workers movement.





"

-- from Michael Cooper and Mary Williams Walsh's Alabama's Failed Pension Is a Warning " in the NYT

The New York Times

December 22, 2010



Alabama Town's Failed Pension Is a Warning



By MICHAEL COOPER and MARY WILLIAMS WALSH



PRICHARD, Ala. -- This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry.



Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full.



Since then, Nettie Banks, 68, a retired Prichard police and fire dispatcher, has filed for bankruptcy. Alfred Arnold, a 66-year-old retired fire captain, has gone back to work as a shopping mall security guard to try to keep his house. Eddie Ragland, 59, a retired police captain, accepted help from colleagues, bake sales and collection jars after he was shot by a robber, leaving him badly wounded and unable to get to his new job as a police officer at the regional airport.



Far worse was the retired fire marshal who died in June. Like many of the others, he was too young to collect Social Security. "When they found him, he had no electricity and no running water in his house," said David Anders, 58, a retired district fire chief. "He was a proud enough man that he wouldn't accept help."



The situation in Prichard is extremely unusual -- the city has sought bankruptcy protection twice -- but it proves that the unthinkable can, in fact, sometimes happen. And it stands as a warning to cities like Philadelphia and states like Illinois, whose pension funds are under great strain: if nothing changes, the money eventually does run out, and when that happens, misery and turmoil follow. . . .

[T]he declining, little-known city of Prichard is now attracting the attention of bankruptcy lawyers, labor leaders, municipal credit analysts and local officials from across the country. They want to see if the situation in Prichard, like the continuing bankruptcy of Vallejo, Calif., ultimately creates a legal precedent on whether distressed cities can legally cut or reduce their pensions, and if so, how.

The city paid off its last creditors from the bankruptcy in 2007. But its current mayor, Ronald K. Davis, never complied with an order from the bankruptcy court to begin paying $16.5 million into the pension fund to reduce its shortfall.



A lawyer representing the city, R. Scott Williams, said that the city simply did not have the money. "The reality for Prichard is that if you took money to build the pension up, who's going to pay the garbage man?" he asked. "Who's going to pay to run the police department? Who's going to pay the bill for the street lights? There's only so much money to go around."



Workers paid 5.5 percent of their salaries into the pension fund, and the city paid 10.5 percent. But the fund paid out more money than it took in, and by September 2009 there was no longer enough left in the fund to send out the $150,000 worth of monthly checks owed to the retirees. The city stopped paying its pensions. And no one stepped in to enforce the law.



The retirees, who were not unionized, sued. The city tried to block their suit by declaring bankruptcy, but a judge denied the request. The city is appealing. The retirees filed another suit, asking the city to pay at least some of the benefits they are owed. A mediation effort is expected to begin soon. Many retirees say they would accept reduced benefits.



Companies with pension plans are required by federal law to put money behind their promises years in advance, and the government can impose punitive taxes on those that fail to do so, or in some cases even seize their pension funds. . . .

#



The colleague who passed along this NYT story commented: "Prichard, Alabama is going to be used as a model for voiding contractual commitments made to retired public workers. Once again, contracts for working Americans are worth shit, unlike contracts for Wall Street executives who broke the economy."We've known since, well, since shortly after the economic meltdown occurred that eventually the bad stuff was going to hit the fan pretty badly at the state and local government levels. The much-maligned stimulus package, inadequate though it was to really reverse the downward spiral of the economy, did delay some of the worst of it by pumping those chunks of cash into state and to a lesser extent local treasuries, but even that wasn't enough to make more than a dent in the holes facing budget-makers across the country.Naturally they've been hacking away at expenditures every way they can, generally making sure that the pain is felt the most by the people who'll give them the least grief, meaning that the highest level of service has been preserved for those least in need. And public workers being an increasingly beloved target of the rampaging right, and having pretty much no constituency except themselves, they're an obvious target.Now, as the NYT story notes, the problem with funding pensions isn't new.The Times reporters note the nationwide reach of the pension-funding problem, as a result of which a lot of attention is now focused on Prichard.Prichard retirees have already had a unilateral 8.5 percent pension cut, in violation of state law, after the city declared bankruptcy in 1999. "A previous mayor," the Times reporters note, "was removed from office and found guilty of neglect of duty.""[I]f a company goes bankrupt," the reporters note, "the federal government can take over its pension plan and see that its retirees receive their benefits," under the 1974 federal pension law. However, "the law does not cover public sector workers."All indications are that the Prichard retirees are screwed, and current employees paying into the system are . . . well, confused and not very hopeful.Welcome to the future?

Labels: economic meltdown, Labor