VOL. 128 | NO. 183 | Thursday, September 19, 2013
City Pension Crisis Goes Silent but Still Moving
By Bill Dries
City Council member Lee Harris said it was the subject at hand Tuesday, Sept. 17, during the day of committee hearings and council session at City Hall.
The subject was the PricewaterhouseCoopers study confirming that the city’s pension plan liability is unsustainable if the city does not act. But the pension plan was never discussed directly in any of the committee sessions nor in the council session itself.
“We happen to believe the numbers, but before we come up with a specific recommendation, we are giving everybody a chance to test the numbers,” Memphis Mayor A C Wharton Jr. said. “At this point, I’m not going to get into an argument with anybody on the numbers. We stand by our numbers, but we have an open mind.”
Leaders of the city’s municipal unions have been critical of the estimates and conclusions in the report since its release over the weekend.
Council member Kemp Conrad said Tuesday the city needs to push past the dispute over numbers and begin talking about changes in pension and retirement benefits for current city employees, not just those for future hires.
“What we get from the union groups is distractions. … If we just didn’t do any more capital projects, it would still be a problem. If we eliminated the PILOT program, this would still be a problem. We just need to deal with it,” Conrad said. “We tinkered with it two years ago. Had we done the changes we did for new employees for all employees of 10 years or less, it would have helped a lot. We didn’t do that. The union came out against it. … We don’t need any more half-measures.”
Conrad is talking about changes in benefits for city employees who are not yet vested in the city plan.
“We’re going to have to,” he said. “I don’t think you can fix it just dealing with new employees.”
Union leaders have also argued the city’s assets are drawing a better return on investments than they were at the height of the recession, which the report pegs as the key culprit in the pension fund’s unsustainability.
“The idea that you just keep playing the market right would require a 13 percent annual return over a sustained period of time,” Wharton countered. “The last person who guaranteed that out of New York is doing federal (prison) time.”
Wharton said the city will have to do better than the 6 percent it has been paying on the annual required contribution since he took office in late 2009. But he’s not talking about a percentage until the city has a stable amount to use.
“Until we cap the liability that keeps growing, that annual required contribution keeps growing,” Wharton said. “We do know one thing: that the amount we have been paying and are paying simply is insufficient.”
Capping the liability means determining how retirement and pension plans will change and whether those changes apply only to new hires or also to existing city employees to some degree.
City Finance Division director Brian Collins told council members Tuesday the administration is still waiting for national economic conditions to produce something close to the $8.6 million savings the city hoped to realize from the restructuring of its bond debt.
Because of that, Wharton has yet to pull the trigger on the restructuring.
“The refinancing was contingent on market interest rates as they existed prior to the June surge,” Collins wrote in a memo to the council, referring to the “unprecedented surge in interest rates” this summer just as the council put a tumultuous budget season to rest by passing a budget and setting a property tax rate.
“Initially we remained cautiously optimistic that interest rates would settle back down into a range that would allow us to move forward with our refunding plans,” he added. “Unfortunately, although interest rates have stabilized, they have not returned to the range we need to successfully execute the planned refinancing.”
He told council members in committee Tuesday that the interest rates in the 3 percent range appears to be the “new normal” and won’t produce the savings anticipated.
Collins said that with “expense cuts and revenue embedded” in the current city budget, the administration should be able to make up the difference when it does pull the trigger on the refinancing.