Mass Gov Proposes State Take-Over of Municipal Pension Funds

When Duval Patrick was running for Mass Gov, he kept saying he was something new and different and making promises nobody expected him to keep. One of those promises was to make sure that other cities and towns got more of the state money the legislature had been saving for Boston. We didn’t think he’d ever get away with that even if he meant it.

We’re finding out how wrong we were.

In office barely a month, Patrick has already eased some of the financial crises our municipalities faced by sending them more money – as he promised – and also by granting them new home-rule powers to tax, powers previous governors jealously guarded and the legislature rejected in one Home-Rule petition after another.

But having done that, Patrick is proving he isn’t afraid to exact a price if he thinks it necessary. Noting that municipal pension funds are underperforming compared to the state pension fund, and are therefore seriously underfunded, he’s proposing to take them over.

Governor Deval Patrick is proposing a tough new mandate for the state’s cities and towns: If your pension system isn’t performing, we’re taking the money and investing it ourselves.

As part of a municipal relief package Patrick is to unveil today, approximately one-third of the state’s 107 public pension funds would be forced to turn over nearly $5 billion in assets for investment by the state.

Those funds, which include the system overseen by the Massachusetts Turnpike Authority, have earned lower returns than the state’s pension fund over the past five years and contain less than 80 percent of the money necessary to cover their pension obligations. Many of the funds invest pensions collectively for several cities and towns.

The proposal, which would encroach on an often jealously guarded function of local government, must be approved by the Legislature, which has cast doubt recently on another aspect of Patrick’s municipal agenda, his proposal to allow cities and towns to impose a small local meals tax on restaurants. An effort to take control of the pension funds could spark criticism from local governments, who have put their hope in Patrick after years of depressed local aid and increasing property taxes.

“Spark criticism”? They’re going to squeal like stuck pigs.

The takeover makes sense, though, as a measure to protect state workers from the potential bankruptcy of an underfunded pension system. Mass municipalities have for years been short-changing appropriations made to those pension funds in an effort to stay under the 2.5%/yr cap on spending imposed by the aptly-named Prop 2 1/2 passed in the 80’s by anti-tax crusaders. A provision in that law requires that towns have to have voter approval of any budget that is more than 2.5% higher than the budget the year before and town officials have been understandably reluctant to do that, assuming that voters would automatically turn down any such request without bothering to understand what the need was.

Mostly, they’ve been right. A majority of those requests, which anti-taxers invariably refer to as “budget-busters” even if they’re as little as a half-percent above the cap, have been rejected (the exceptions being when they were for capital projects like a new school), leaving municipalities trying to stretch the same dollars year-to-year despite growing needs, growing demands, and a growing inflation rate usually above 2.5%.

As a result, pension fund contributions, one of the easiest items in any town budget to cut, have been slipping for two solid decades, and the system is in jeopardy of collapsing as the Baby Boomers start to retire. City workers I know around here stopped expecting to collect their pensions years ago, assuming that the money wouldn’t be there by the time it was their turn to collect.

But this is Massachusetts and legitimate financial difficulties aren’t the only factors involved in the pension problem. There’s also political corruption to be considered.

Questions have also been raised about the mishandling of public pension funds. In Brockton, controversy arose over a police lieutenant’s $140,000 annual pension. And Middlesex County recently shifted nearly $700 million in assets to the state after the inspector general’s office charged that one board member billed thousands of dollars in fraudulent expenses and that the bidding process for the system’s new headquarters was rigged.

Those are only two examples out of dozens over the years when the pension fund was raided by some municipal official or another for purposes as varied as paying to paint his house or for a 2-week cruise in the Bahamas.

If Patrick can get his proposal through the legislature and past all the municipal squealing, city employees across the state may actually be able to collect their pensions after all, the pensions they have been working for and paying into for years even though they never expected to see that money again. And in Mass, that would certainly qualify as something new and different.


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