New Haven Independent: Pension Reform Eyed

Pension Reform Eyed

by Melissa Bailey | November 19, 2008 2:07 PM | Permalink | Comments (12)

As the financial crisis squeezes retirement funds, aldermen want to know how long the city can sustain its pension obligations before being “crushed.”

In an order submitted to the full Board of Aldermen at Monday’s meeting in City Hall, three aldermen called on the DeStefano administration to report back on how badly its pension funds are suffering from the economy’s collapse.

They asked for a special mid-year actuarial analysis of the city’s pension obligations. A city official was cool to the idea, saying it is unnecessary and might blow a hole in this year’s city budget.

The directive is the latest in a series of moves by a trio of aldermen, Beaver Hill’s Moti Sandman, East Rock’s Roland Lemar (pictured above, left to right) and Beaver Hill’s Carl Goldfield, the aldermanic president. They have joined together to tackle long-term budget costs, particularly in the police and fire departments.

In July, the three aldermen jumped into the fray of stalled police contract negotiations by offering suggestions on how to keep pensions and other costs from “bankrupting the city.” Click here for a story on that effort, which gained support from 23 aldermen.

Monday’s move targeted the city’s two pension funds, the police and fire pension and the retirement fund for other city employees. Every year, the city hires actuaries to analyze how the funds are expected to perform. Based on those projections, they suggest a rate for how much the city should charge private employers for the pension costs incurred when they hire extra-duty cops.

The last analysis was done on June 30, according to City Controller Mark Pietrosimone.

Given the unexpected financial meltdown, the alderman asked the city for a new actuarial report, pronto.

“In the face of financial collapse, we have financial obligations that we’ve entered into” — yet no way to pay for them except for the property tax, said Lemar. He and his colleagues don’t want to wait another half a year to find out where their budgetary obligations stand.

The city’s pension funds combined have plummeted this fiscal year. The City Employee Retirement Fund fell nearly 24 percent, from $198 million on July 1 to $151 million on Nov. 1, according to City Hall. In the same time period, the Police and Fire Retirement Fund fell 16 percent, from $277 million to $233 million.

Though its pension funds are dwindling, the city has a legal obligation to keep those pots of money full enough for future retirees. Every year, the city pays into that pool to support its pensioners.

For fiscal year 2009, the city has allocated $31 million of its $456 million budget for pension costs. When the market gets poor returns on those investments, however, it means the city will have to pay more and more to keep the coffers filled.

“Is the amount we budgeted enough?” Sandman asked.

Asking that question could be costly, Pietrosimone warned.

Pietrosimone said he would comply with their directive if it is approved, but his first reaction was that doing a mid-year actuarial report was “not a good idea” because it might end up costing the city more money in this fiscal year.

Aldermen needn’t be in such a hurry, he added, because actuarial reports are based on a 30-year model. “If you look at it from an actuarial point of view, there’s no rush about it. You can rely on the actuarial analysis. It makes up for all the ups and downs that we’re going to experience.”

“We Don’t Want To Be Crushed”

The aldermen’s inquiry comes at a time of growing concern over how the city can support its financial obligations, especially with an enormous state deficit casting a shadow over future budget years.

In FY2010, the city’s budget is estimated to grow by $20 million due to increases in health care, pensions and salaries. Mayor John DeStefano, Jr. has said that amount is too much to bear through the property tax alone. He has called on city unions to reopen labor contracts to help the city stay afloat through financial turmoil.

Aldermen vote to approve the mayor’s budget. The three alders also happen to sit on the aldermanic Finance Committee, which has been trying to take a more proactive approach to budgeting. The last time they did that, critics such as Police Union President Louis Cavaliere objected that they were overstepping their boundaries.

“We are fiduciaries of the city,” replied Sandman Monday. “[Labor] contracts define the budget for the next five years. If we don’t make our voices heard, then we really will be a rubber stamp.”

Presidents of the police and fire unions did not return requests for comment for this story.

Looking ahead, Lemar indicated that the weight of the current pension plan might be too much to bear, given the unexpected Wall Street crash.

“We didn’t anticipate budgeting the amount of money we’re going to have to budget,” he said. One of the reasons that Detroit’s Big Three automobile companies are on the brink of bankruptcy is because of their employee benefit plans, Lemar said.

“When you watch private companies collapse under the weight of this,” he said, it underscores the need for the city to look at the road ahead.

“We don’t want to be crushed,” Lemar said.

In their July letter, Lemar and Sandman called on the city to push for pension reform as part of police contract negotiations. They called for a pension cap that would stop police officers from inflating their pensions through overtime hours. They also suggested switching from a defined benefit to a defined contribution pension plan.

That was before the country slid into the greatest economic crisis since the Great Depression. The recent news has, in their eyes, intensified the need for reform.

“Six months ago, it was a concept,” said Sandman. “Now, it’s a reality. We need to take action.”

Extra-Duty Pay

The aldermen’s order includes one specific inquiry related to extra-duty police work. When a private employer, for example the BAR night club, hires a cop to guard the door, the city charges BAR an hourly fee. The fee is supposed to cover both wages for the officer, as well as money to pay for that officer’s future pension costs, which will be boosted by the overtime work.

Given the diminishing returns on the city’s pension funds, the aldermen say the extra-duty fee needs to be reexamined.

“Is the city charging enough?” asked Sandman. “If not, then the city’s paying those overtime costs.”

The answer to that question remains to be seen. The aldermen’s directive seeking answers was not voted on Monday. It will be heard at a public hearing before the Finance Committee, then it must be approved by the full board.

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Comments

Posted by: Bill | November 19, 2008 3:54 PM

When are the state and towns going to wake up? Most companies don't even offer a pension plan let alone allowing retirement after 20 years.

Posted by: Your Tax Dollars at Work | November 19, 2008 4:12 PM

Thanks: Sandman, Lemar and Goldfield! You're doing a fine job!

Posted by: Joan | November 19, 2008 4:19 PM

I know you guys are about to be ripped to shreds by the PD and FD unions, so before you perish from this fine world - I just want to say thank you for your terrific and attentive efforts. Kudos...and Alderman Lemar, you will always have my vote and to alderman Sandman, I know a few families in your neighborhood that don't read the Independent but I'll make sure they are aware of your efforts.

Posted by: s | November 19, 2008 5:09 PM

Good luck finding poilce and fireman to work in this City without a pension plan. Other cities that have done way with their pension plans had to increase salaries.In those departments police and fire make a third more in yearly salary.

Posted by: Gary Doyens | November 19, 2008 5:42 PM

The city only budgets for what they are actuarily required or projected to pay out in a current fiscal year. For years, the city has been and is this year, paying in less than what it owes the pension funds based on the contracts the mayor so lovingly embraced and the BOA approved, including these three alders. These pension accounts are currently underfunded by tens of millions of dollars, if not more. I believe the number exceeds $100 million. Before anybody hands out too many "attaboys" I would suggest you wait to see what they do and not what they say, propose or about which they write a letter. That's the easy part.

Posted by: Tom 14 | November 19, 2008 7:22 PM

Just to let people know police and firesighters pay into there own pension just like other people pay into Social Security which police and fire do not collect. So before you assume that they are just taking more $ from the city remember that they are getting back what they have put in.

Posted by: streever | November 20, 2008 11:48 AM

Great work you three! Keep it up!

Posted by: Webblog 1 | November 20, 2008 4:17 PM

It's premature to slap this crew on the back for raising issues they should already have the answers to, and for.

All this motley crew need do is to look at their own web-site, city of New Haven.com and review their already BOA approved Audit report by Levitsky and Berney dated June 30 2007.

OK... I'll make it easy for you. Go here....

http://www.cityofnewhaven.com/Finance/BudgetsFinances.asp

Annual Audits.. see pages 64-74 for a complete analysis.

Stop the grand standing and do your own home work.

Posted by: JFH-16 | November 20, 2008 10:24 PM

I love granstanding politicians...The Man Who Would Be Governor DeStefano included. As part of an agreement approved by the BOA in the last contract settled with the city, NH firefighters conceded to give up so called Time and a half overtime pay for straight time. The Mayor demands that all union's open up their contracts for new settlements, while at the same time using prime downtown property to develop yet another school that will bear his name on the dedication. While the FD continues to struggle to keep enough paramedics on duty, there is still no requirement for new hires to be at the very least EMT's, nevermind paramedics as many other forward thinking area departments are requiring. At the same time the city is laying off employees, DeStefano demands that the FD hire a new class of recruits, none of which are paramedics,but the BOA said nothing about their "attack" on the pension. Could it be these hires are all payback for DeStefano for Guv campaign supporters throughout the state? Where are these new hires from...Wallingford, Stratford, Branford to name a few. And what about the New Haven 20? These men were denied promotions because despite the fact that the Civil Service Braintrust changed the rules at haftime of a rigged game, Lt. For Life Tinney still couldn't make the grade. If the Supreme Court hears this case, and DeStefano Forbid, they rule in their favor, how much will this little foray cost the city? When does the buck stop on Church St?

Posted by: FM | November 21, 2008 10:15 AM

Just because large corporations have managed to screw the middle class by basically ending pensions and putting all of the risk on individuals with 401(K)s doesn't mean that is the way it should be. The "greatest generation" that built this country during the Second World War enjoyed a secure middle class lifestyle thanks to their hard work and the sense of responsibility businesses took towards reliable, long-term employees. Particularly since firefighters, police, and teachers in CT do NOT pay into social security (and, in fact, are PENALIZED with a reduction in the social security they recieve relative to what they have paid in while in another line of work or in a side job - this is called the "windfall elimination provision") secure pensions are necessary. However, I think it is reasonable to discuss whether police overtime should contribute to pension...certainly those who pay for "private duty" work need to absorb the full cost, not the city. As a NH taxpayer and NH teacher I feel squeezed from both sides. Pensions are NOT an unreasonable expectation!

Posted by: Disgruntled Democrat | November 21, 2008 12:35 PM

I am still waiting for the City to talk about how it is going to meet the pension short fall, and not just the city budget. It is a non-budget item so most people don't know about it.

Did you know that the municipal pension has a base rate of 8%? That means that DeStefano decided that that was a rate that the City could get as a return consistently. Most cities use a 4 to 6 percent return as their benchmark.

Every percentage point less than that the City must contribute approximately $1 million. With the pension down around 30% this year, that means that the City needs to find $38 million to fund the pension for this year alone. So the six million dollar deficit is a drop in the bucket compared to what is actually needed for this year. Next year it will be the same thing. Does anyone really think that the market is going to average 8% next year.

We are solvent for another few months, then after that, we will be bankrupt. What happens then? We need a good Green, Independent or Republican candidate, not someone part of the Democratic machine, to clean up this mess. Anyone dumb enough to volunteer?

Posted by: rescueme | November 22, 2008 3:57 PM

Reading the comments from JFH16 it appears he's in the know. Payback to those making appointments to the FD and PD is just that, you support Johnny and I'll take care of you - for the time being of course. On the other hand, the fate of the New Haven 20 could push the CIty and fire department into yet another layer of legal battles that have plagued them dating back to the late 1970's. For how long will we (taxpayers) allow civil service to work long and hard to promote incompetence. Color just doesn't matter anymore - its all about competence and making oneself better at doing their job. But if you look at the FD, you'll see that really doesn't matter. You only need to have a certificate that says you completed rookie school to a chief. Until that changes or you bring in an outsider that will have control over the workforce it will remain status quo and suffer.

New Haven Independent

Pension Reform Eyed

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