Answered>Order 7093

Public officials, it is often charged, promote measures intended to make the government “look good” in the short term but that may be deleterious in the long term. Assume that the following actions, designed to increase a reported surplus, were approved by a city council:

1. It reduced the city’s contributions to the employee “defined benefit” pension plan from the $10 million recommended by the city’s actuary to $5 million to finance benefits earned in the current period. Under a defined benefit plan the employer promises employees specified benefits on their retirement, and the level of benefits is independent of when and how much the employer contributes to the plan over the employees’ years of service.
2. It reduced by $1 million the city’s cash transfer to a “rainy day” reserve maintained to cover possible future reductions in tax collections attributable to a downturn in the region’s economy.
3. It sold securities that had been held as an investment. The securities had been purchased five years earlier at a cost of $2 million. Market value at the time of sale was $5 million.
4. It delayed until the following year $10 million of maintenance on city highways.