City Seeks Path Out Of Pension Red Ink

Police-fire Fund Could Take Cues From San Diego

April 27, 2009|By Annie Linskey | Annie Linskey,

The moment of horror that hit Baltimore this year, when officials realized the depth of the city's pension problems, came a full seven years ago for San Diego.

During a 2002 City Council meeting in that Southern California city, a pension board member announced that the city's plan needed more than $1 billion in taxpayer money to stay afloat.

"My heart went down to my toes," recalled April Boling, a certified public accountant in the audience who immediately understood that the retirement system was poised to bankrupt the city. It took a while longer for others to realize the enormousness of the problem, but Boling was later tapped to head a pension reform commission that recommended sweeping changes.

With retirement fund investments tanking as the economy shudders, the San Diego experience of wrestling with a gravely underfunded municipal retirement system is now occurring all over the country. Elected leaders in places like Philadelphia, New Jersey and Baltimore are grappling with ballooning pension contributions, which threaten their ability to operate libraries and recreation centers and provide other services.

Mismanagement of San Diego's fund led to federal indictments and the resignation of a mayor, but new leadership pulled the fund toward solvency. As cities look for solutions, experts point to San Diego as one of the few places where meaningful reform staved off disaster.

"We are not out of the woods," Boling said, noting that stock market declines mean San Diego's pension obligations are once again threatening the city's budget. But the sacrifices made now would be far more severe if the city hadn't acted then, she said.

The most important step San Diego took was pouring hundreds of millions of additional dollars into the pension account - something Baltimore can ill-afford.

Other reforms included ending some benefits, creating a less-generous plan for new employees and adopting more realistic expectations for the return rate on investments. San Diego also reorganized its pension board so members no longer had incentives to hide the health of the fund, a change that some experts say is sorely needed in Baltimore.

Baltimore is looking at those fixes and others as it faces huge funding requirements for police and fire retirees. The public safety pension fund is projected to need a $110 million contribution from the city for the budget year that begins July 2010, an amount city officials say is unaffordable.

The needs, Mayor Sheila Dixon said, "have gotten out of control."

Dixon has proposed legislation that, over time, would mitigate future increases, and a separate bill would reduce a lucrative benefit to those who defer retirement. She, along with City Council President Stephanie C. Rawlings-Blake, have called for independent recommendations to reform the fund. Unions also have put forward a plan that calls for members to pay higher contributions.

City officials hope an outside expert could offer suggestions and diffuse the political pressure that inevitably accompanies proposed pension system changes. Baltimore's police and fire unions bused in hundreds for a recent City Council hearing on cuts to their pension, packing the chamber, with some members standing in hallways.

"It is hard to take back what you've given," Dixon said in a recent interview. "The people who are getting the benefits spent a long time working for city government."

A deputy mayor was booed last month when he used a slide showing that 80 percent of those benefiting from the city's fire and police pension system don't live in Baltimore. "Of course that number was surprising to a lot of people," Dixon said. "It shed a lot of light when we are making hard decisions."

While Baltimore's public safety retirement system might be an extreme example, other Maryland public retirement systems have seen major losses that will translate into larger contributions.

"Of course we are concerned about the drop in investment values," said Sharon Greisz, Howard County's director of finance. The fund lost roughly a quarter of its value from December 2007 to December 2008. But, she said, officials are waiting for "the market to stabilize" before addressing the shortfalls, she said.

Depending on the extent of losses, which will be factored in to contributions due June 2010, Maryland governments might turn to places like San Diego for ideas. Baltimore's fire and police fund is receiving the most attention because of the unique way it is structured and because of heightened concern over affordability.

Finding the money

San Diego was booming and could afford to more than double its pension contributions when officials decided to act. Contributions went from $69 million in 2004 to $163 million in 2006, without sacrificing city services or raising taxes, Boling said, though city employees went without raises during that time.

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