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Thursday, Mar 30, 2017
Politics

City of Tampa grapples with rising cost of pension plans

TAMPA - Tampa's pension costs are rising at an alarming rate, city officials say, even as the city has shed hundreds of jobs and cut spending to meet its payroll obligations. Four years ago, city taxpayers contributed about $1.5 million to Tampa's police and fire pension fund. Next year, city officials project that figure to surpass $19.5 million. Overall, the city's contributions to its public safety and general employee pensions have doubled in the past two years, from $20 million to a projected $40.6 million next year. The reason has more to do with economics than politics: Both funds are required by state law to be kept at a certain level, so when the market meltdown whittled away its worth, the city and its employees were required to contribute larger amounts.
Observers say the city will surely be forced to keep cutting personnel and services and dig deep into its already strained reserve funds to cover rising pension obligations. And it will do so with less property tax revenue, as values are expected to stay flat. Mayor Pam Iorio raised that concern last month during her presentation of the fiscal year 2011 budget - her final as Tampa's mayor. "We have to look at reforming the pension system," she said. "Now I'm not talking about taking away benefits for anyone who currently relies upon the system. But I think it would be wise to look at changing the system ... so the cost to government isn't so severe." Mark Anderson, who chairs the city council's budget advisory committee, said the huge rise in pension contributions will force the city to make some tough decisions, including cuts to the police and fire department budgets that are typically seen as sacred cows. Unless the stock market rebounds dramatically, he predicts costs will continue to rise. "Our projection is that by 2013, the city's contribution will be $60 million," Anderson said. By comparison, that's more than a quarter of the city's payroll costs for the current fiscal year and a number that dwarfs most of the operating budgets of most city departments. Anderson and others believe the city needs to consider replacing its existing pension plans - which guarantee employees lifetime income based on their salaries and years of service - with 401k-type investment plans for new employees that define - and limit - the city's contribution level. While that might do little to reduce short-term costs, Anderson said it would help prevent wild fluctuations in the city's required contributions when the stock market goes down. Under the city's pension system, contributions are adjusted every year to ensure there's enough money to cover payouts, regardless of how the plan's investments are performing. Defined contribution plans, on the other hand, are based on a percentage of employee wages. This isn't the first time Tampa's pension costs have skyrocketed, only to stabilize a few years later when the market rebounds and boosts plan investments. In 2004 and 2005, the city's contributions to the police and fire fund alone shot up to more than $13 million. Then the market rebounded, and the city contributions dropped to $1.5 million in 2006. "The fund is designed so that the city and employees share the gain and the pain," says Jennifer Campbell, who administers the city's $1.2 billion police and fire pension fund. When the city's required contributions go up, she said, so does the employees. Campbell said switching to other pension plans - such as a retirement plan like the Florida Retirement System that guarantees a specific level of benefits - might end up costing the taxpayers more. That's because under such a defined benefits plan, the city - not employees, who would pay into the plan on a fixed rate - would have to cover the bulk of any investment losses. "That would put the city on the hook for significantly higher contributions," she said. Tampa isn't the only Florida city grappling with rising pension costs. John Thomas, director of policy and political affairs for the Florida League of Cities, said he has heard from a number of municipalities that are trying to reduce pension costs. "They see that train coming down the track," he said. "And they're trying to slow it down." The city of Orlando changed its pension system more than a decade ago. Faced with rising contribution levels, the city in 1998 stopped offering pensions for general employees and switched to plans for new employees that pay 7 percent of salaries and match annual employee contributions up to another 3 percent. Since then, the city's annual contributions have remained relatively stable, at around $8 million. The changes only affected general employees, because the city would have forfeited millions of dollars in state funding if had scrapped the police and fire pension plan. Nationwide, the cost of many government-run pension plans has become unsustainable, says Eli Lehrer, a senior fellow at The Heartland Institute, a Chicago-based think tank. "Unless there's a particularly strong economic recovery, more local governments will run into serious problems," he said. "Without widespread reform, it's quite likely that we'll see a fair number of cities and counties file for bankruptcy protection over the next decade." But changing a local government pension system is a task easier said than done, Lehrer said, and municipal leaders are unwilling to challenge powerful labor unions that have fought hard to increase wages and retirement benefits for employees they represent. As an example, none of the five declared mayoral candidates vying to replace Iorio was willing comment on the issue that the winner of next March's city elections will face. Any changes to Tampa's pension plan would need the approval of the city, retirees and labor unions, as well as adoption of a special act by the state legislature. "We can't go to the city council on Thursday and say we want to change it," Campbell said. Still, the rise in contributions to Tampa's pension plans are due, in part, to Iorio's efforts to increase city worker wages and benefit packages as a recruiting tool. Shortly after taking office in 2003, Iorio bumped up the multiplier used to calculate a pension payments, allowing a police officer or firefighter who earned $50,000 to retire after 20 years with 63 percent of his ending salary. She also decreased the vesting period to qualify for pensions and gave city employees cost of living adjustments, all of which have increased the city's financial burden. Still, Iorio defends those actions, saying wages and benefit packages for city workers, police and firefighters were woefully low when she took over the helm. Lehrer said in the economic climate, cities like Tampa should be taking steps to cut wages, freeze pay raises and reduce benefits that add to mounting pension costs. "Local governments have to take a look at the issue of employee compensation and cut them back," he said. "Generally, mediocre government employees are overpaid." cwade@tampatrib.com(813) 259-7679
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