July 22, 2014 in Opinion

Editorial: Congress’ highway fund fix lacks responsibility

 

The Spokesman-Review Editorial Board

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The Spokane City Council may vote next week on a new “Rule of 80” that will put city pensions on a sounder financial footing.

This week, Congress probably will adopt a new “Rule of 535” that will allow corporations to short their pension fund payments as a way of refilling the Highway Trust Fund. It’s an incredibly irresponsible action, even for this Congress.

The city is taking the responsible course.

Several employee unions, including those representing managers, prosecutors and some Fire Department employees, have accepted contract changes that will require those hired after Dec. 31 to work longer to qualify for their pensions. Instead of meeting requirements at age 50 and 25 years of service – the Rule of 75 – they will have to have 30 years of service at that age, or some other combination that adds up to 80 years.

They must work seven years instead of five to vest, and to age 65 instead of 62 to get a pension if they stop working for the city before getting to 80.

As importantly, city and employee pension contributions increase to 8.25 percent of pay, up from 7.75 percent.

Those increases alone would bring city pension funding up to 90 percent of the money needed to meet its commitments to former, present and future employees. The law says that’s close enough to 100 percent to be considered full funding.

But changing the retirement criteria gets the city to 100 percent, although the rate of return on investments that back funding assumptions are not very realistic.

Nevertheless, the proposed agreement would be a real achievement for the city and its employees.

Congress, meanwhile, would put about $11 billion into the Highway Trust Fund largely by encouraging private employers to contribute less to their pension plans. The fewer the dollars socked away for retirees, the greater the corporate income subject to taxation. The lawmakers blissfully assume that the low investment returns of today, which account for the underfunding of many plans, will increase down the road. If rates do rise, corporations will be able to catch up with their funding obligations without having to increase pension contributions.

If they do not, and companies must put away more for the future, they will pay less in taxes. Or, as so many weakened companies have done, they hand their underfunded pensions over to a government insurance fund, as Kaiser Aluminum did a decade ago. But the Pension Benefits Guaranty Corp. has financial problems Congress’ gimmickry will worsen.

Americans should start asking their senators and representatives who they will bail out first when the time comes: the PBGC or Social Security.

The fix for the Highway Trust Fund is an increase in an 18.4-cent federal gas tax that has not been changed since 1993, and reforms like requiring states to use the money for transportation instead of education (Texas) or Medicaid (Kansas).

The Rule of 535 says Congress will have the nerve to do neither, or much of anything else.

To respond to this editorial online, go to www.spokesman.com and click on Opinion under the Topics menu.


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