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Board of Alders President Tyisha Walker-Myers at Monday’s task force meeting.
City of New Haven chart.
Recent history of rising city pension costs.
Alders have brought back to life a pension task force to help figure out ways for the city to plug a nearly billion-dollar hole.
That public body, the Pension Task Force, met on Monday afternoon for the first time in more than two years.
The meeting lasted just 17 minutes. Only three members of the task force showed up.
Monday’s online gathering nevertheless marked a renewed appreciation of the fiscal severity of the city’s gaping public employee retirement obligations.
Per the mayor’s proposed budget(s) for the fiscal year that starts July 1, the city could see its annual pension fund contributions reach a combined total of more than $84 million — a 26 percent spike from this fiscal year’s payments.
Thanks to a new, more conservative way of calculating estimated investment returns, unfunded liabilities for the City Employee Retirement Fund (CERF) are now at roughly $315.6 million, while unfunded liabilities for the Police and Fire Retirement Fund (P&F) at roughly $638.7 million, bringing the combined unfunded liability total to more than $954 million across the two funds.
“I wanted to get the task force back started because we all know that pensions are a really important part of our budget,” Board of Alders President and West River Alder Tyisha-Walker Myers said at the outset of Monday’s virtual meeting, held online via Zoom.
“For so long, it wasn’t funded all the way,” she said about the city’s two pension funds. “And then for a while, people didn’t know what the underfunded liability even looked like.” Now, the number is plain and visible for all to see. And “it’s shocking,” she said.
The Board of Alders created the pension task force through a budget policy amendment back in the summer of 2018. The group has held only two meetings so far— the first in December 2018, the second in early January 2019. Its mission is to identify different ways to fulfill the city’s pension obligations to its employees and to research best practices from across the country in regards to addressing the rising costs of pensions and underfunded liabilities.
When the task force last met, the city’s unfunded liabilities across both pension funds was roughly $700 million.
Today, that combined unfunded liability number exceeds $954 million.
That significant jump is not due to the city putting away less money into the pension accounts in the intervening two years. In fact, the city’s annual pension contributions from the general fund have only increased in that time.
Instead, the dramatic increase to the city’s unfunded liability is largely due to a new, more conservative — and, advocates say, responsible — way that both pension funds calculate their respective estimated investment returns.
This year, both pension fund boards, with the encouragement of Mayor Justin Elicker and City Budget Director and Acting Controller Michael Gormany, each dropped their respective estimated annual rate of investment return from 7.75 percent to 7.25 percent.
Gormany explained in a recent Finance Committee budget workshop that that decision was made based on an analysis and recommendations by city-hired actuaries, who took a look at how well each fund’s investments have performed in recent years — and on how much the city should responsibly expect those funds to earn in the coming years based on changing market conditions and their current portfolios of investments.
The most immediate impact of the lowest rate of expected return is an increase to the city’s annual contribution from the general fund to each pension account, also known as the actuarial determined employer contribution, or ADEC.
The Elicker Administration has proposed that, in the fiscal year starting July 1, the city should increase its annual contribution to the pension funds from a combined total of $67.2 million to up to $84.7 million.
Another effect of the dropped estimated rate of return is an increase to the city’s long-term unfunded pension liabilities — that is, how much money it owes in pension payments to current retirees and future retirees.
With the lowered rate of return estimate, that combined unfunded liability number is now up to $954 million.
Thus the return of the Pension Task Force.
“I think it’s really necessary that we continue to have these conversations because we know this is one of the major drivers of the city budget,” Walker-Myers said.
POBs, Back On The Table?
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Task force member Cathy Graves.
So, what potential solutions did the board discuss during its inaugural meeting?
Pension obligation bonds, or POBs.
“I think it’s worth having a discussion if we are [going] to look at that option again,” Walker-Myers said.
Task force member, CERF Vice-Chair, and city Deputy Economic Development Administrator Cathy Graves agreed. “There are pros and cons to that,” she said about POBs. “With those bonds, timing is everything. We should definitely explore our options.”
City Budget Director and Acting Controller Mike Gormany.
Task force member, City Budget Director and Acting City Controller Mike Gormany touched on the potential risks and rewards of issuing POBs, which is essentially long-term debt used to provide a short-term cash infusion to the pension accounts.
“It all depends on the structure of the pension obligation bonds,” he said. “You’re taking the unfunded liability, but you’re adding a debt service liability on the other side of the ledger. In a perfect world, the structure would be: You’re lowering your ADEC payment enough for savings and to cover the new debt liability.”
The city last considered issuing $250 million in POBs in 2018 under the administration of former Mayor Toni Harp. The alders ultimately shot down that idea to bring on a hefty chunk of new long-term debt as too risky, especially if the interest rate on the bond provided to be higher than the pension funds’ actual returns.
But now, at least at this early stage of committing to future research and conversations, the task force is considering POBs as a potential future salve.
“We are at a point where we can’t continue running from the conversation any more,” Walker-Myers said about the city’s unfunded pension liabilities as a whole. “We have to really deal with it.”
Walker-Meyers is 'shocked' at the pension liability?
Turning a blind eye for the last two years to the most significant contributor to our 'tax excesses' is a failure in leadership, plain, pure, and simple.
It is becoming clearer and clearer that 90% of these Alders are in over their heads.