When you snooze in Royal Oak... You lose!

Tonight, in Royal Oak at twelve midnight when most residents are sleeping, the city will end its 2013/2014 fiscal year and begin its 2014/2015 FY. This past month the city administration has produced the same financial reports that have been produced and approved by the city commission for the past decade. This year, as the city commission and adminstration stated in study sessions, we have good news and we have bad news. First the bad news. We have an unfunded acturial accrued liability (UAAL) of $74,2 million dollars in pensions and another $113 million in Other Post Employment Benefits (OPEB) for a total of $187.2 million in unfunded liabilities. The good news is that,as mandated by the state of Michigan, we have a balanced budget! While I have professed in the past, I am not a CPA but Iam, also, not a stupid man. Stated by the City Manager during the sessions this represents "real debt." This reminded me of an article in which Bill Gates was asked "Do we have a huge unaccounted for problem that's going to hurt our government budgets?' His response -
Absolutely! Its pretty mind blowing. It's partly because the way state (and local) budgets are presented are so fraudulent.There's a thing called the Government Accounting Standards Board that allows you not to take (meaning report) full pension costs, not to take retiree healthcare benefits. It looks really free, to continue deficit spending - but only accounting fraud allows you to pretend it's balanced. 

The rules used by state and local governments today, when they report their pension finances, are built on a huge "fatal flaw".When Bill Gates says "Only accounting fraud allows governments to pretend their budgets are balanced he's essentially correct. It may be not be fraud "on purpose" - but it's fraud "in effect" - a fraud committed against the people and, frankly, against younger government employees

Government financial statements for decades have been seriously understated and failed to raise the alarm about the massive debt that was the outcome. This is the case in Royal Oak.

At the end of June 2012 the Government Accounting Standards Board known as "GASB" - imposed major changes to that will begin this new fiscal year and state and local  governments must report their pension finances. GASB was finally forced to confrount the fatal flaw and its old rules and fix it. Moody's industrial services has announced that they adopted several adjustments they are going to make to their pension finances in their credit rating analysis. They,also, concluded that government financial statements understate the the threat of unfunded pensions to investors who buy government bonds and even state that GASB's new rules "don't go far enough".The new rules will go into effect in Royal Oak tomorrow.

My main purpose in utilizing this blog is to educate and inform the taxpayers of the City Royal Oak regarding this financial delemia. I hope this will become an avenue to transparency, sustainability, and accountability. I stumbeled in this 'mine field" for over ten years. The journey was arduous, frustrating, and cost a few personnal dollars yet this was the fun part. The hard part was seeing and hearing the stench of apathy and let somebody else worry about it. If I only had a dollar for every time I heard "let it go Shaw...nobody cares!"

Last year at this time I attended the special budget meeting to express my concerns regarding the cities unfunded liabilities. There were two of in the audience representing the residents. I was the only speaker that rose during public comment. After five minutes I was told to be seated. It was no surprise to me,watching to this year, to see that no citizens rose for public comment.I could not believe that not one resident in Royal Oak could not step up to the commission and ask "If we have an unfunded liability of $187.2 million dollars...How can we have a balanced budget?"  

In the next few weeks I will try to present, in as simplified manner I can a very complex subject. I will draw my information from years of Freedom Of Information Act (FOIA) requests from the City of Royal Oak, employee retirement information, bargining unit information, PA 312 documentation. I will attempt to utilize only information that can be verifed and documentated.

Over the years of analizing this data I feel I can suggest some solutions for consideration. I realize full that the people who must act to bring much needed reform to the system have a vested intrest in preserving the status quo. I do not have that obligation.

As stated in the City Managers transmittal letter regarding legacy costs " I didn't have a solution when I wrote this last year and I don't have a solution for this problem now. I do have some ideas, but they will require changes in state law and some require constitutional changes. don't think we can solve this by ourselves, nor should we. This is more than a Royal Oak problem. It impacts the vast majority of cities, states, and even the federal government." There are some aspects that I agree with and some I don't.

While this problem is wide spread my only concern was the City of Royal Oak. However an integral part of the city is our school district. During my study of the ramifications of the city's unfunded liability, the changes and reforms will not only impact the city but school district. The state of Michigan has a fund that covers Michigan school employees. The fund covers not only teachers but support personnel.The system is called the Michigan Public School Employees Retirement Fund (MPSERS). Presently this fund is reporting an unfunded liability of $24.3 billion.I would expect to soon read of news and reports from the school district and the impact of these changes its reporting statements.

As always, I ask for and encourge al comments, questions, and remarks. I only request that in any correspondance the communications contain real names. This i8s a real, and soaring problem. If you have areas that need answered please let me know.

Areas for my consideration are as follows:

1. How did we get here,where are we at, and where are we going?
2. GASB. What is it?
3.Types of pensions.
4. How do you calculate a pension
5. Pension board responsibilities and make up of the board
6. "Spiking" pensions
7. "Air Time"
8. Contract negotations PA312
9. FOIA and Open Meetings Act
10. Pension termininology.

Looking forward to your responses.