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An unusual pension benefit for police and firefighters could cost Baltimore $164.9 million next year, nearly double what the city is now paying and a figure that the city's finance director says taxpayers cannot afford.
After years of calls for pension reform, board members who oversee the nearly $2 billion system said their Tuesday vote that passes the whopping bill on to City Hall is a message that the fund is close to a breaking point and needs attention.
Edward J. Gallagher, the city's finance director, said the city "certainly cannot afford" to pay the full commitment due in July. "It seems that our concern has really come home to roost."
Pension costs for the roughly 5,800 retired police and firefighters are soaring at a time of deep budget problems. The city recently forced employees to take five unpaid furlough days, laid off workers and halted capital projects to chop $60 million from its current budget. Declines in projected tax revenues and cuts from the state prompted cuts. Another round of budget reductions is expected early next year.
The new retiree funding request is twice as large as the $81.9 million the city paid to the fire and police pension fund last year.
If the pension system is not altered before the bill comes due, needed cash could come from raising the city property tax rate 11 percent, or "significant reductions across all agencies, including public safety," Gallagher said. Mayor Sheila Dixon, who has long sought reductions in the city's tax rate of $2.27 per $100 in assessed value, has said both options are unacceptable.
Failing to pay a large portion of the bill could trigger a downgrade in Baltimore's AA bond rating, which would in turn increase the cost of borrowing money for capital projects.
The pension board's 5-2 vote narrows the window of time available for reform of a troubled system. Board members, however, have been saying for years that the fund needs tens of millions of dollars in order to continue paying current benefits.
"Of course I know we can't afford that" amount, said City Comptroller Joan M. Pratt, one of the five board members who supported sending the city the high bill. "There needs to be some changes in the benefits. The action that needs to be taken has been put off for a long time."
Peter Keith, the mayor's appointee to the board and a partner at a downtown law firm, also supported the measure, but said: "We have been paying out too much money. People have to collectively come together to solve the problem."
The extra cash is needed largely to shore up a part of the pension program called a variable annuity. The benefit is similar to a cost-of-living increase, but is tied to positive stock market returns. When the market goes up, some of the extra money is given to retirees in the form of a permanent pay increase, an uncommon benefit that has made Baltimore's costs grow. In most pension plans, extra money is plowed back into the asset funds to make up for the bad investment years.
The Dixon administration in March recommended replacing that part of the retirement benefit with a straight cost-of-living increase - a change that would have likely headed off Tuesday's vote. However, the unions objected, saying the proposed COLA was too low.
The administration withdrew that plan and offered a new proposal to suspend the variable benefit, with the idea that some type of COLA would be reinstated later as part of a larger pension reform effort.
Unions object to that plan too, and there has been no action on it. Councilman William Cole, who is the chair of the committee overseeing the legislation, said he is awaiting a report from a group representing the city's business interests before acting.
"I don't think the council is prepared to do anything" before hearing from the Greater Baltimore Committee, Cole said. "Clearly, I would like to see a long-term solution and not just a one- or two-year fix."
Donald C. Fry, the head of GBC, said his committee will likely make recommendations by December.
Bob Slegeski, the president of the firefighters union, said that the city has been unwilling to work with his group to solve the problem. The union has offered its own reform plan, which includes higher contributions from members. The proposal, discussed briefly on Tuesday, cannot be enacted without legislation. No bill reflecting the unions' view has been introduced.
Tuesday's vote made a technical change to one figure in the complex formula to determine what the city's contribution should be. The board voted to lower the assumed investment return on one pot of money from 6.8 percent to 5 percent.
Though the change triggers a larger city contribution from taxpayer dollars, it also downgrades the future outlook of the fund. The market value of the fund's assets has fallen to 50.2 percent of what is needed to pay out all benefits. Last year, it was 89.4 percent funded.
Dissenters on the pension board included Fire Chief Jim Clack, who only recently started attending the meetings because city budget cuts to his agency forced him to lay off the representative he had designated to the board.
Clack called the decision to send on the huge bill "a mistake," and argued that the board should find ways to trim benefits before seeking such an increase. "We are in a depression. For us to dump this on the city is crazy."
Separately, the plan's actuary reported that the fund lost $777 million in market value in the past two years. Those losses do not hit the fund all at once, however, and are responsible for $22 million of the $164.9 million request.
After years of calls for pension reform, board members who oversee the nearly $2 billion system said their Tuesday vote that passes the whopping bill on to City Hall is a message that the fund is close to a breaking point and needs attention.
Edward J. Gallagher, the city's finance director, said the city "certainly cannot afford" to pay the full commitment due in July. "It seems that our concern has really come home to roost."
Pension costs for the roughly 5,800 retired police and firefighters are soaring at a time of deep budget problems. The city recently forced employees to take five unpaid furlough days, laid off workers and halted capital projects to chop $60 million from its current budget. Declines in projected tax revenues and cuts from the state prompted cuts. Another round of budget reductions is expected early next year.
The new retiree funding request is twice as large as the $81.9 million the city paid to the fire and police pension fund last year.
If the pension system is not altered before the bill comes due, needed cash could come from raising the city property tax rate 11 percent, or "significant reductions across all agencies, including public safety," Gallagher said. Mayor Sheila Dixon, who has long sought reductions in the city's tax rate of $2.27 per $100 in assessed value, has said both options are unacceptable.
Failing to pay a large portion of the bill could trigger a downgrade in Baltimore's AA bond rating, which would in turn increase the cost of borrowing money for capital projects.
The pension board's 5-2 vote narrows the window of time available for reform of a troubled system. Board members, however, have been saying for years that the fund needs tens of millions of dollars in order to continue paying current benefits.
"Of course I know we can't afford that" amount, said City Comptroller Joan M. Pratt, one of the five board members who supported sending the city the high bill. "There needs to be some changes in the benefits. The action that needs to be taken has been put off for a long time."
Peter Keith, the mayor's appointee to the board and a partner at a downtown law firm, also supported the measure, but said: "We have been paying out too much money. People have to collectively come together to solve the problem."
The extra cash is needed largely to shore up a part of the pension program called a variable annuity. The benefit is similar to a cost-of-living increase, but is tied to positive stock market returns. When the market goes up, some of the extra money is given to retirees in the form of a permanent pay increase, an uncommon benefit that has made Baltimore's costs grow. In most pension plans, extra money is plowed back into the asset funds to make up for the bad investment years.
The Dixon administration in March recommended replacing that part of the retirement benefit with a straight cost-of-living increase - a change that would have likely headed off Tuesday's vote. However, the unions objected, saying the proposed COLA was too low.
The administration withdrew that plan and offered a new proposal to suspend the variable benefit, with the idea that some type of COLA would be reinstated later as part of a larger pension reform effort.
Unions object to that plan too, and there has been no action on it. Councilman William Cole, who is the chair of the committee overseeing the legislation, said he is awaiting a report from a group representing the city's business interests before acting.
"I don't think the council is prepared to do anything" before hearing from the Greater Baltimore Committee, Cole said. "Clearly, I would like to see a long-term solution and not just a one- or two-year fix."
Donald C. Fry, the head of GBC, said his committee will likely make recommendations by December.
Bob Slegeski, the president of the firefighters union, said that the city has been unwilling to work with his group to solve the problem. The union has offered its own reform plan, which includes higher contributions from members. The proposal, discussed briefly on Tuesday, cannot be enacted without legislation. No bill reflecting the unions' view has been introduced.
Tuesday's vote made a technical change to one figure in the complex formula to determine what the city's contribution should be. The board voted to lower the assumed investment return on one pot of money from 6.8 percent to 5 percent.
Though the change triggers a larger city contribution from taxpayer dollars, it also downgrades the future outlook of the fund. The market value of the fund's assets has fallen to 50.2 percent of what is needed to pay out all benefits. Last year, it was 89.4 percent funded.
Dissenters on the pension board included Fire Chief Jim Clack, who only recently started attending the meetings because city budget cuts to his agency forced him to lay off the representative he had designated to the board.
Clack called the decision to send on the huge bill "a mistake," and argued that the board should find ways to trim benefits before seeking such an increase. "We are in a depression. For us to dump this on the city is crazy."
Separately, the plan's actuary reported that the fund lost $777 million in market value in the past two years. Those losses do not hit the fund all at once, however, and are responsible for $22 million of the $164.9 million request.
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Raven2234, the only smearing and pounding the table on here has been coming from you. You have totally failed to address the real reason for this pension situation, and you have not acknowledged the actuarial realities that created this pension system in the first place, even when others responding to you have pointed them out. You have done nothing but attack firefighters on here, and your comments are clearly the result of some "issue" you have with firefighters. My advice to you is to try to get over your jealousy or fear, and try to appreciate them for what they do. After all, I'm sure they're neither jealous nor fearful of you. :-)
Baltimoron1974 (10/15/2009, 9:18 AM )