Schmoke would tap pension fund for city's cost


Citing Baltimore's "difficult financial situation," Mayor Kurt L. Schmoke wants to take the unprecedented step of tapping into the $1.5 billion pension fund to cover some of the operating costs of a city agency -- a move considered to be illegal by several pension trustees.

The mayor's request, made in a Nov. 16 letter to the administrator of the pension fund, would open "a Pandora's box" on the use of pension money and could lead to further inroads on the fund, according to Edward C. Heckrotte Sr., chairman of the 11-member pension board.

Concerned about the ramifications of the mayor's proposal, the trustees have asked for a formal opinion from the city Law Department on the legality of such a move.

At issue is the proposed use of pension funds to pay a third of the operating costs of a unit in the Civil Service Commission that administers health-care benefits for city workers, retirees and their families.

William E. Dix, a Transportation Department worker and trustee of the employees' retirement system, said he believed the trustees were barred by law from using pension funds to cover costs other than those associated with running the retirement system.

"It's illegal," Mr Dix said. "It's spelled out in the ordinance what we can spend money for."

Added Mr. Heckrotte, the board chairman: "The next step is they'll be wanting us to pay the cost of the retirees' Blue Cross and Blue Shield, which is astronomical. All this keeps adding up and in the long run it's going to be the retirees paying for it."

Under the law, pension fund moneys can be used to pay for services associated with the operation of the retirement system, said Ernest J. Glinka, the system's executive director. In recent years, those operating costs have included producing and mailing retirement system checks, for which the retirement system reimburses the city about $120,000.

The retirement system also this year will pay the city $150,000 for data processing services, according to retirement system figures. And it has agreed in principle to pay for the system's annual audit, which in the past has been conducted by city auditors and paid for by City Hall.

But the Schmoke administration also wants the retirement system to pay about $102,318 to cover the Civil Service Commission's cost of responding to questions and requests by retirees for information about health-care benefits.

In a succinct, Nov. 16 letter to Mr. Glinka, Mr. Schmoke laid out the pension trustees' options:

"Because of the difficult financial situation faced by the City, the cost of administering health benefits for retirees can no longer be borne by other agencies. To protect the rights of retirees and to assure continued service to them, these administrative costs must be paid" by the employee retirement system.

In April, the pension board flatly rejected a similar proposal, after consulting with the Law Department.

The trustees relied on an informal, non-binding opinion from an assistant city solicitor who said that the pension funds are "trust funds which are to provide for the benefits of specific retirement benefits and that the funds of the Retirement System should not be diverted for any other purpose," according to the minutes of the trustees' April 19 meeting.

Then, in November, the mayor's terse letter arrived, demanding the $100,000 reimbursement. The letter ended with this note: "Please, tell me, no later than November 21, what arrangements will be made for your agency to assume these responsibilities."

Jesse E. Hoskins, the city's personnel director, said yesterday the administration is in no way "pressing" the trustees on this issue.

"We were suggesting this. We do a lot of business with retirees and their dependents," Mr. Hoskins said. "We need as much support financially. If they're not legally able to do this, I'll accept that."

Cathie Eitelberg, the chief pension lobbyist for the Washington-based Government Finance Officers Association, said the issue before Baltimore's pension trustees is one facing many local and state governments. The idea of "moving some salaried employees to the pension fund may be an unusual request but trying to shift costs is not," she said.

"This is kind of an ongoing situation," said Ms. Eitelberg, whose association represents state and local budget directors, finance officers, comptrollers and pension administrators. "State and local pension funds have $720 billion in assets. It's a lot of money and you have supporting jurisdictions of those pensions funds that are having economic turndowns. There are a lot of expenses, a lot of cities and states are feeling financial pinches as the economy cools down. I think you're going to hear more about it rather than less."

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