If the vote by the Baltimore fire and police pension board to pass a whopping $165 million tab on to the city was meant as a call for attention, let's hope they now have it. Heavy stock market losses combined with unsustainable benefits and systemic management issues have forced the board to request twice as large a contribution from the city next year as they're getting this year. The city, which has already been forced to enact layoff and furloughs, to cut services and eliminate capital projects, can't afford it without raising property tax rates by 11 percent. But if it doesn't pay, the city could see its AA bond rating lowered and face additional costs for borrowing money. The situation has reached a crisis point, and Baltimore needs to enact comprehensive reforms, not the stopgap measures the Dixon administration has proposed so far.
Baltimore police and firefighters have tough jobs that can put them at significant risk for the public's benefit. We do owe them a debt for that service, and their pensions are important because they do not receive Social Security benefits. But what we have guaranteed them is beyond generous.
Police and firefighters can retire after 20 years of service and get a pension equivalent to 50 percent of their salary. In many cases, that means they're retiring as young as 40 and have decades to draw their pensions. What's more, the city has provided them a unique benefit that gives retirees permanent increases in their pensions in years when the fund's investment performance exceeds 7.5 percent but doesn't take them back in years when the fund grows modestly or - as has happened in the last few years - loses value. It's heads they win, tails taxpayers lose.
For years, though, the fiscally draining effects of these benefits has been masked by optimistic assumptions pension board members have made about how much their funds are expected to grow. The board voted Tuesday to lower its growth expectations for one pot of money from 6.8 percent to 5 percent, a long- overdue action that triggered part of the $165 million request.
Why would the board underestimate the true cost of funding the pension system? Because many of the members have an incentive to do so. Six of the eight members either do or will receive pensions from the fund. The chairman, Stephan G. Fugate, is also head of the city firefighters union, meaning he both manages the pension funds and negotiates the benefits the city will have to pay out. Underestimating the costs of the benefits makes them more attractive for city leaders to grant.
