Officials say new pension plan actually saves money

UTICA, March 9, 2009 -- In 2008, Utica gave public safety officials an enhanced pension plan that caused the city to take on more than $5 million worth of debt over 10 years.

The debt was taken on because the city needed to pay a fee to initially buy into the new plan.  

However, city officials said had the city not settled on a more favorable pension, a binding arbitration hearing would have forced the city to increase salaries more than it did, and the costs would have been even more. 

"When people say you gave away the candy store, they don't know the mechanics of this," Roefaro said in an October interview with Utica Daily News. 

The state mandates that an independent evaluator have authority to settle pay disputes because public safety officials cannot go on strike. 

The mayor said in the October interview that he looked at the City of Oneida and the Oneida County arbitration cases, both of which resulted in 4 percent raises. 

Also, he said, he factored in the 2 percent extra he thought arbitration would award the officials and couldn't accept such steep salary increases over a long period. 

"When you give a 4 percent raise, that's forever," he said. "That goes on for a lifetime." 

In fact, one of the people that was most critical of the mayor's 2010/2011 budget, Comptroller Michael Cerminaro, said that because of the binding nature of arbitration-- the city did, in fact, save money. 

"You have to look at what was being awarded across the state," Cerminaro said. "They were issuing increases of 4 and 5 percent. So, while there are initial costs, there's increased revenue that you can use. So it's a net change, and it actually saves us money." 

Roefaro also said that he thinks officers will retire earlier because they'd be able to make a living on their pension, which is still less than their salaries. 

Under the old plan, pensions would pay out 50 percent of an employee's salary upon retirement after 20 years.

The plan negotiated in 2008 allows for an additional 1.6 percent of an employee's salary to be added-on every year after the 20th. It does cap the additions at 32 years of service, which would allow for a public safety official to make more than 69 percent of his or her salary upon retirement after 32 years. 

The fire department took a two percent raise agreement in 2008, and because a younger force meant a less costly buy-in, police took a 3 percent raise agreement. 

Police Union President Tom Brady said that the department also made other concessions including having to pay 15 percent of medical insurance costs upon retirement instead of the 10 percent that was the case before 2008.

Brady said negotiating took place after research had been done on neighboring cities and departments. He said going to arbitration would have been a gamble for both the city and the departments. 

"We have to make an argument and the city can turn around make a better argument," he said. "It's a gamble because you don't know what one person is going to rule." 

Brady said that in order for the department to keep its officers, it has to pay at least a similar rate as other municipalities. 

"The thing is with a young department, if we're not going to pay what another city pays,  what's going to stop them from picking up and going," he asked. "How do you retain the members that you have?" 

He argued that recent retirements have already deprived the police department of valuable experience that is missed right now. 

STATE PENSION FUND

The main driver of costs though, is the city's required contribution to the state pension fund. The state invests on behalf of its cities to cover pension costs. When those investments lose money, the pensions still have to be paid in full, leaving the city on the hook for the balance.

As the stock market went down, so did the pension fund and the city's responsibilities went up.:

• From April 2008 to April 2009, the fund lost $44 billion— almost 30 percent.
  
• The pension fund had gained back nearly 17 percent of that money by May of 2009. 
  
• However, the city has to cover for the shortfalls in payments made during the drop-off period. 
  

In other words, the city has to cover pension costs that it never anticipated because the state fund couldn't pay out as much as it normally would. 

Now that pension contributions are rising on the city's part, Roefaro has said it's putting a strain on the city budget. 

GOING FOWARD 

Still, Brady said most of the police department lives in the city and are concerned about higher taxes and the city's fiscal situation. One thing it's doing, he said, is working with the mayor to try and settle on one health insurance carrier for all of the unions and workers to help negotiate cheaper rates. 

And even though Cerminaro and other officials have proposed cuts to the department's personnel, Brady said he hopes that any potential cuts would be given with the input of the departments. 

"We know we are a large portion of the budget," he said. "It's easier to sit there and say 'This is what can get things from where we are now to something cheaper'," he said. "But I don't think the council or the comptroller knows what's best to cut from the police department. I'd rather they give us an amount of money and let bosses decide what's best to cut." 

Cerminaro said he's worried, as always, that borrowing more money may effect the city's bond rating, but agrees it was the right thing to do. 

"Every city in the state is always worried about its bond ratings," he said. "Will we go down below investment grade? I hope not. I certainly don't think so." 

Officials say the reason the fire department's payments have grown at a larger rate is because the city had to contribute a larger sum to buy into its new pension plan because of it's a more tenured workforce than the police department, but they point out, that goes away in 2010 and 2011.    

Public safety pension costs:

Fire department:

2007: $1.45 in 2007; 2008: $1.1  million 2009: $4.6 million; 2010: (projected) $1.2 million; 2011: (projected:$1.62 million

Police department: 

2007: $1.4 million;  2008: $1.4 million in 2008, 2009: $1.45 million, 2010: (projected) $1.6 million. 2011: (projected) $2.2 million. 

Total State Aid 

(Some of which cannot go toward pension payments)

2008: $17.6 million 2009: $19.6 million; 2010: $19.2 million; 2011: (projected) $18.1 million