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Original article URL: http://bridgemi.com/2012/05/pension-costs-burn-through-city-budgets/
22 May 2012
Lansing’s taxpayers were doused with some difficult news last week: The city’s pension fund for police and fire retirees could use a nearly $2 million boost from the city’s general fund. And the city’s already fighting a budget deficit.
Big-city fire departments across Michigan continue to wrestle with the legacy costs of public safety pensions, benefits earned during times of relative prosperity.
Eric Lupher of the Citizens Research Council of Michigan notes that legacy pension obligations are a key problem in cities such as Pontiac, Benton Harbor and Flintthat have been placed in the hands of emergency managers under Michigan’s controversial Public Act 4.
And a study by the Center for Community Progress, a nonprofit community development advocacy group, found that 40 percent of Flint’s 2010 budget went to benefits and pension costs. Saginaw spent nearly 30 percent of its budget for pension obligations, spending that did not cover an accumulated $215 million in unfunded retiree health benefit obligations.
In Grand Rapids, a retired fire chief topped the city’s annual pensions in 2010 at $97,124. A fire lieutenant earned $71,672. The city’s fiscal director warned that annual employee pension obligations could reach $26 million by 2015.
Pension obligations accounted for 42 percent of the city’s payroll in 2010, six times greater than the 7 percent of payroll in 1980.
Union officials counter that the pensions were a trade-off for years of sacrifice in pay and benefits.
Given the risk and physical demands of firefighting, CRC’s Lupher said generous pensions are often “with good cause. But the question is whether they can be sustained? We are starting to see the answer to that.”
As firefighter contracts come up, Lupher believes many municipalities must move from defined benefit pensions to individual retirement accounts, if they are to avoid fiscal calamity.
“Legacy costs are a huge part of the problem,” he said.
Mark Docherty, president of the Michigan Professional Fire Fighters Union, says he is mindful of the fiscal picture facing many communities, but is opposed to shifts to IRAs
“We have dangerous jobs. We get hurt. In many cases, there is loss of life. We have a responsibility to take care of them,” he argued.
Docherty cited the case of a Sterling Heights police officer, killed in the line of duty at the age of 28. With an IRA, he might have had $8,000 saved, Docherty said. By contrast, his traditional pension benefits were enough to support his widow until she could find work, he explained.
Ted Roelofs worked for the Grand Rapids Press for 30 years, where he covered everything from politics to social services to military affairs. He has earned numerous awards, including for work in Albania during the 1999 Kosovo refugee crisis.