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.
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.