Christopher Peak Photo
Patrick Cannon confronts Daryl Jones about his department’s spending at a tense pension meeting.
Showdown at City Hall.
• “You don’t have the money!”
• “You’re out of order!”
Patrick Cannon, a representative for New Haven’s firefighters, went on the attack early Friday morning at a joint meeting for the city’s two pension boards, criticizing the city controller for that tampering with pension payments to fix up the budget.
Cannon was responding to plans that Controller Daryl Jones had announced earlier this week to pay down a $14 million deficit this fiscal year with money that that was originally budgeted for the city’s retirement accounts.
At the end of the contentious meeting, where Cannon asked for Jones to be removed from the pension board and maybe even fired from his job, Mayor Toni Harp said she is committed to making this year’s required contribution. Or, at least, trying.
“It’s my intention that we make the payment,” she said. “Daryl, who has to make the payment, is saying he will try.”
Mayor Toni Harp: Committed to trying.
New Haven maintains two pensions, the Policemen & Firemen’s Retirement Fund (P&F) for public safety employees and the City Employees Retirement Fund (CERF) for other municipal employees (except teachers). Both are nearly broke.
As of mid-2017, P&F was funded at 40.9 percent, and CERF was funded at 34.1 percent. In real dollars, the two pensions are $412 million short of what they owe. And those figures are based on the suspect premise that the funds will generate an average yearly return of 7.5 percent on the stock market, which they’ve repeatedly failed to do in recent years.
Jones had wanted to refill the pensions by taking out a $250 million bond, a strategy that stabilized funds in Waterbury and ruined them in Bridgeport, he said. But alders shot the idea down as too risky. They worried that interest rates on the debt would outrun investment returns on the stock market.
When that didn’t happen, Jones proposed draining the funds even further.
The current fiscal year’s budget allocated $34.6 million to P&F and $21.6 million to CERF, but the city has thus far this year paid out only $24.8 million into P&F and $15.2 million into CERF. Under Jones’s proposal, part of the remaining $16.2 million would pay off cost overruns in police and fire’s overtime and school spending, totaling about $14 million.
Already put on notice by credit ratings agencies, New Haven is now teetering between two dismal outcomes, as it decides whether to catch up on budgetary overruns or pension obligations.
If it doesn’t pull from the pensions, the city would have to take on debt to close this year’s deficit, potentially leading to oversight by the Municipal Accountability Review Board, which the mayor believes would sideline her administration from controlling major financial decisions like union contracts. But if it doesn’t make the pension payments, the city’s already underfunded pensions won’t be able to cash in on a bull market, putting the funds at risk of bankrupting the city in decades to come.
Carolyn Kone.
But that difficult choice might already be made, a lawyer for the pension fund said.
Carolyn Kone, an attorney at Brenner, Saltzman & Wallman LLP, pointed out that CERF’s plan, which the Internal Revenue Service approved before granting tax-exempt status, has a provision that could force the city to pay up.
“The City of New Haven shall pay to the Retirement Board such amounts to fund the benefits provided by this Plan as shall be determined by the Retirement Board based on sound actuarial principles,” the section reads.
Kone said that underfunding CERF’s pension wasn’t an option for trustees with a fiduciary responsibility to their members. “There’s no question about it,” she said.
P&F’s plan, on the other hand, doesn’t have the same language, Kone added.
But Cannon said he believes that a charter provision might have them covered. That section states that the mayor must budget for the “estimated expenses necessary to carry out the purpose of the fund.”
Kone said that likely refers to fees for lawyers, actuaries and brokers, not the required annual payment for future retirees. “That would be a stretch,” she said.
Patrick Cannon: It’s ridiculous to steal from an underfunded pension.
Union representatives questioned why the city hadn’t tried to close the deficit earlier in the year and asked how they could be sure they city won’t default on its payment again next year.
The public safety representatives, in particular, ripped into Jones for what they called “mismanagement” of city funds.
“The actuaries that we paid to set this up stated, quite simply, that this money needs to come in or the pension is going to collapse,” said Brian McDermott, the police representative. “No realistic rate of return is going to be able to save the fund, if no money is coming in.”
Cannon questioned whether Jones actually enforced any of the “expenditure controls” that were promised, as a deficit loomed. Given the cuts in state funding that Jones knew were coming, Cannon asked how he justified an overseas business trip to China, a banquet for finance staffers at Lighthouse Park, and pay raises for department heads.
“You don’t have the money to do it!” Cannon said, shouting over Jones’s attempt to answer. “It’s ridiculous!”
“You are out of order,” Harp interjected.
“He’s not going to allow me to speak,” Jones said, crossing his arms. “It’s not worth it.”
Cannon said that Jones hadn’t kept his promise to fully fund the pensions this year. In January, they’d both squared off at a meeting about the exact same issue. The union representatives tried to hold up a new investment policy from taking effect until the city’s full payments were made.
Daryl Jones.
At the time, Jones told them not to worry. As he recalled on Friday morning, with the state budget in limbo as school started up again, he needed to keep a free cashflow to make payroll. “That became not a budgetary issue but a cash issue,” he explained. “We went week to week and decided what bills got paid.”
Back in January, Jones had assured the public safety unions he would eventually cough up the money for their pensions. He cited the city’s track record of following through on actuaries’ recommended contribution every year since 1995.
Cops and firemen now feel like they were duped, they said, especially since they couldn’t get a clear answer on Friday morning why Jones didn’t transfer the money over immediately after the state finalized its appropriations and the city collected its mid-year taxes, if it was truly just the cash-flow issue that Jones claimed.
“Two weeks before the end of the fiscal year, now you’re saying that you’re taking it,” Cannon said.
“There’s multiple other things you’re not aware of,” Jones said, like watching the way the Board of Education was losing magnet grants, short-staffing at the police department was driving up costs, and medical bills were outpacing twice what they’d expected. “I cannot tell somebody you can’t have cancer this week,” he said. “When that $500,000 bill comes in, the city makes the payment. We cannot control that money.”
“That’s your job description. Apparently you didn’t forecast it properly,” Cannon said. “You should be removed, at least from your fund.” He added, “If [Harp] does the right thing and makes this contribution, this fund might not go under. We’re already on a lifeline, and you’re part of what’s closing it.”
Jones said that the two pensions would never make up the money through investments. He faulted the alders for not taking up his plan to issue bonds, saying that was the only way to straighten out the city’s finances.
“P&F did a 15 percent return last year, and that did not move the needle. It’s going to take a whole bunch of money, beyond what the city and employees contribute, to make these pensions whole,” he said. “I recognize that. That’s why I put out the pension obligation bonds. That’s a plausible solution to rectify the situation. Is there a risk? Absolutely. I never said there wasn’t one.”
Go Pat!