OUTSIZED RISK "The Minneapolis taxpayer is essentially being asked to sign a blank check and hand it over to someone else to fill it in. And the Minneapolis taxpayer has no real way of limiting the amount of that check.'' Minneapolis City Council Member Betsy Hodges
Minneapolis needs fix for pension problem
- February 25, 2008 - 11:27 AM
Minneapolis Mayor R.T. Rybak, a former newspaper reporter, has not lost his storytelling skills. He describes the decades-old pension liability that he and several previous mayors inherited as the tale of two fictional widows. One widow is representative of the participants in the two funds, which cover a relatively small number of retired police and firefighters. The other widow is a homeowner who pays property taxes, and she is at greater financial risk today because of the way the funds are structured. Without hurting widow No. 1, Rybak and the City Council want to protect widow No. 2. It's a worthy effort. The two pension funds -- the Minneapolis Police Relief Association (MPRA) and Minneapolis Firefighters Relief Association (MFRA) -- were closed to new members about 30 years ago, when the funds chose to remain independent from the state retirement system. Because of some incredibly shortsighted decisions made over the years at City Hall, the funds have an outsized impact on Minneapolis taxpayers even though city officials have virtually no control over them. For example, annual benefits are determined by the two associations and are not linked to cost-of-living measures commonly used by other pension funds. Rather, they're tied to the yearly pay of a small number of current employees. So if three high-ranking police officers work a lot of overtime because, say, a bridge collapses, pension benefits go up. In addition, the city is responsible for covering any shortfalls in the funds, although it has only two members on each board and consequently almost no influence on how the funds are governed or how their money is invested. And if the funds perform beyond projections, the 900 police pension recipients and the 600 covered by the fire fund -- who receive an average of more than $40,000 a year -- can get bonus checks. How much does all this cost the good people of Minneapolis? In 2008, the city's contribution to MPRA from the tax levy is $3.6 million, with another $2.8 million required for debt service. For MFRA, the figures are $3.4 million and $829,000, respectively. The long-term picture is more disturbing. According to city officials, from 2008 to 2010, the Minneapolis contribution to the two funds is expected to grow 203 percent, to $14.2 million, not including debt service. The city says the combined city obligation to the funds, with debt service, over the next 20 years will be $255.8 million -- a figure that representatives of the funds say is grossly inflated to make a case. City officials have met with representatives of the funds to work out differences, but the disagreements are decades old. The city has three goals: Ensure that both MPRA and MFRA are fully funded through 2020 with a fixed contribution from the city; merge the two funds into the state's Public Employee Retirement Association (PERA), with money management by the State Board of Investment; and change the cost-of-living formula to make it consistent with those of other police and fire retirees in Minnesota. In this scenario, retirees would continue to receive a base level of benefits, with cost-of-living increases, and the city would be able to remove the open-checkbook risk to its taxpayers. Despite strained relationships, city officials and representatives of the funds should bargain in good faith and make a deal. If they can't, the Legislature should step in and solve the problem for them.
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