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How will ATL’s next mayor handle $1.2 billion pension shortfall?
Atlanta’s public pension funds are $1.2 billion in the hole, largely the result of shortsighted decisions at City Hall over the last eight years. A new report calls, among other things, for slashing benefits for new employees.
But those steps won’t help much with the funds’ current liabilities. Legally, the city cannot take back benefits that workers have already earned.
The general employees’ fund faces the biggest shortfall, with $749 million in assets and $1.4 billion in liabilities as of Jan. 1. That’s a shortage of $687 million, more than the city’s 2010 operating budget. The police fund was short by another $313 million, and the firefighters by $233 million. (A state audit reports these numbers.)
Some quick background:
— In 2002, shortly after Mayor Shirley Franklin took office, the council sweetened the police retirement package. The so-called “multiplier” — the figure used to calculate a pension benefit — was jacked up from 2 percent to 3 percent. So, someone retiring after 20 years would collect a pension equaling 60 percent of base pay (20 years times 3 percent) rather than 40 percent (20 times 2 percent).
— In 2005 (an election year), the city cut essentially the same deal for firefighters and for general employees. (Although general employees only got a multiplier of 2.5 percent.) Moreover, the vesting threshold was trimmed from 15 years of service to 10. A city task force in 2004 also made 10 recommendations for shoring up the pension plans; none were adopted.
Council members say no one told them this would cost more money.
And, for as long as anybody can recall, the city’s fund contributions have not kept up with the growing debt. That allowed the “funded ratio” for each plan to slide dramatically in recent years.
For general employees, for instance, the fund’s assets covered 77 percent of estimated future payouts. Since then:
2003 — 77 percent
2005 — 65 percent
2007 — 60 percent
2009 — 52 percent
— Now, in 2009 (another election year), everyone in city government seems to recognize pensions are a huge problem.
Four candidates for mayor talked about pensions over the weekend at forums hosted by the Campaign for Atlanta, a coalition of 13 neighborhood groups. Here’s what they had to say:
City Council President Lisa Borders says the city must evaluate whether current pensions plans are economically sustainable: “We can look at parts of the plan and find ways to ratchet back some of our obligations.” She also thinks the city should review investment strategies to see if the plans can make more money.
For new workers, Borders called for consideration of:
— Returning the vesting threshold for earning retirement benefits to 15 years,
— Reducing the multipliers in each of the funds,
— Consider rejoining the Social Security System, which city employees withdrew from in the 1970s.
State Sen. Kasim Reed described the pension deficit as the “most serious threat facing the city of Atlanta’s financial strength.” He plans to select experts to look at other cities’ best practices and give him an action plan in his first 100 days in office. He said “all options” should be on the table, other than trimming benefits for retirees and current employees.
The city recently extended its amortization schedule to fully fund the plans, Reed said, but “all we really did is kick the can down the road.”
The pension enhancements in 2002 and 2005, Reed said, were “really a false promise because what Atlanta has done since it implemented those benefits is fire 2,000 people … We created a liability that was costing the city so much money that the only way to pay for it was to fire people.”
City Council member Mary Norwood called for a comprehensive review of employees’ pay package: “The whole compensation issue of benefits, insurance, vacation time, increments … has to be looked at holistically.”
Norwood said she has no specific plan but would bring in expert advisers to sort through the options. She does not know yet whether the multiplier should be adjusted: “Someone needs to run those numbers for me.”
She, as did the other candidates, blamed the council’s 2005 vote on a lack of information about the consequences: “When the City Council approved the changes to the pensions, we did that with the understanding that the actuarial studies had been done … and [had found] it was something we could afford to do.”
Jesse Spikes also wants to evaluate pension options as part of a comprehensive look at employee compensation. He noted, for instance, that the 2005 vote “was about people feeling that the employees were under-compensated. … We might have done it on the salary end with a great deal more effectiveness.”
He said he would tackle the issue immediately on taking office. “The studies have already been done,” he said. “They have not been followed because of a lack of political will.”
A pending court case in California might clarify Atlanta’s situation, Spikes noted. The city’s enhanced retirement benefits were made retroactive in 2005. The California case is looking at that practice is illegal in that is “giving people extra compensation for services already rendered,” he said.