Taxation


14
Feb 11

The smallest piece of the pie

I came across a nice little graphic in Moncton’s booklet explaining its taxes to its residents.

This shows the proportion of your total tax burden that goes to your municipality. Eight cents on the dollar. Yet municipalities deliver most of the services that impact most citizens most of the time … the things you rely on daily. Of all levels of government, municipalities are forced to do the most with the least.


24
Nov 10

Pinching pensions

Pension reform is on the horizon for City of Saint John employees, and there’s a lot of rhetoric and strong feelings regarding what many taxpayers feel are overly generous pensions for city workers. What’s missing in public discussion is the fact that pensions aren’t gifts given to employees; they’re earned benefits, and part of the deal that the City makes to attract and retain its workers.

Employees make the decision to take a specific job, and to stay in that job, based on a range of considerations and compensations that include the employer’s pension plan. The pension plan is part of the employment contract, and to arbitrarily change the terms of the pension plan is to break that contract. This should be treated the same way as any other breach of an employment contract by an employer.

That’s a serious thing. Arbitrarily changing the terms of employment is a form of constructive dismissal. It’s like your boss walking into your office and telling you that you’re now working for $4 less an hour. If you say no and you leave, you haven’t quit. You’ve been dismissed without cause.

For relatively new employees, who haven’t paid a significant amount into the pension plan yet, that’s all it is. They need to decide whether they want to sign back up (by not walking out) in their old jobs with less pay or whether they want to move on, find a better job, and possibly sue the City for wrongful dismissal.

For people who have been with the City for longer the issue is much more serious. The pension plan was a key recruiting tool the City used to find and retain the quality employees it needed. Many of those employees gave up opportunities for more lucrative or rewarding work elsewhere in return for that stability and certainty. By changing the pension plan now the City is playing a slow game of bait and switch. For employees who may have been with the City for 10 or 15 years, it’s simply too late to unring the bell. They can’t go back in time and recapture those lost employment opportunities.

Comparisons with the coming CPP crisis aren’t valid because there’s no way of opting out of CPP for most people. Unless you’re willing to leave the country you’re in the same sinking boat as the rest of Canadians. We all pay into CPP, and we’ll all get equally burned when it crashes. While the CPP situation is disappointing (and frankly, terrifying) there was no decision that we as individuals could have made differently. The situation with the City pension is different because many of those workers had choices. If the City had gone to those workers fifteen years ago and told them that they’d only get sixty cents on their pension dollar, many would have left to find more rewarding work elsewhere. Now many of them can’t. (We also have to realize that those who still can, probably will.)

The City’s new strategy of bait and switch might not be criminal but it is deeply unfair. Long-term employees have been making contributions to the pension plan (through both their service as employees and through direct payments into the plan) within a contract that promised them specific benefits in return for those contributions. Pension benefits aren’t something the City gives to employees out of generosity; the employees have already paid for those benefits. To arbitrarily redefine the benefits once payment has already been received is fraud, as far as I’m concerned.

If you bought a new car for $20,000 but the dealer delivered a used model worth only $15,000, you wouldn’t accept the excuse that the dealer lost $5000 of your payment playing the stock market. If the dealer decides to gamble with your payment, that isn’t your fault or your responsibility. The dealer is still responsible for delivering the car you purchased, and anything less is fraud. The pension situation is the same. City employees had no control over how pension funds were managed. (While citizens — or taxpayers, if you like — had a voice in policy and governance through the election of councillors, City employees had no influence over policy or the administration of the pension plan.) Employees didn’t even have the choice to opt out of the pension, as it was a requirement of employment.

Whether taxpayers think City workers are overpaid or not is irrelevant to this discussion. If the pay scales are too high or the benefits too generous, that decision should have been made before workers were recruited in the first place. If the pay is too high, that’s the responsibility of the City itself, not the people being paid. The shortfall in the pension is the City’s responsibility, and not the responsibility of its employees. Downloading the damage to employees who entered into employment contracts in good faith, and had no hand in City governance, is simply immoral.

Saying that, it’s important to make a distinction between the City as an organization, as an entity, and the individual administrators who have been forced into the situation where they’re obligated to request or recommend the changes that have been proposed this week. When I say the City is acting fraudulently or immorally, I’m not referring to individual managers or pension plan administrators. I believe these individuals are acting in good faith and are trying their damndest to find a solution within the envelope allowed them by the regulatory framework that governs pensions, and the tax limitations controlled by Common Council.

And I lay responsibility for this mess squarely at those two doorsteps: inappropriate legislation has directly contributed to the shortfall in the City’s pension plan, and Common Council has set a tax envelope that is popular but does not reflect the City’s actual obligations.

The Province should overhaul the regulations that limit how pension plans can bank surpluses and manage benefits. The assumptions used to assess the pension liability should also be re-evaluated, as many appear to be invalid and may have created a ‘false crisis’ within this pension plan and others in the province.

Common Council should honour the City’s contractual commitments to its employees and manage the tax rate accordingly. Reduce pensions for recently hired and new employees — hell, cut pensions for those groups altogether, and take the lumps in terms of recruitment and retention. But don’t defraud long-term employees of the benefits they’ve already paid for. Yes, there are only 700 or so employees, and 68 000 taxpayers, so some might argue that a tax cut for Saint Johners is the greater good. But that’s really no different than a bunch of thugs swarming someone on a sidewalk. If Saint Johners decide to steal from their City employees in order to keep a few cents off their tax rate, let’s call it what it is.