Minneapolis-state pension merger could get 2nd chance

Minneapolis came very close last week to achieving a property tax-saving merger involving its closed police and fire pension funds, only to see fulfillment of that decades-old goal evaporate in the waning hours of the state legislative session.

That means that the city and the pension funds, which put aside their feuding to reach a last-minute agreement to merge with a statewide public safety pension fund, now are angling for a spot on the agenda during a special session.

But a ruling expected to come down Tuesday from the Minnesota Court of Appeals throws an additional wild card into the equation: Will the merger deal hold if the pension funds win big in their appeal of a lower court ruling that stripped away part of their pensions?

Brian Rice, a lawyer and lobbyist for the pension funds, said he's confident that the deal will stick even if the appeals court reverses the lower court ruling. A judge ruled generally for the city's argument that the pension funds improperly used some elements of police and fire pay in calculating the salary base for pensions. That cost police retirees 10 percent of their pension and fire retirees 4 percent.

The pension merger deal was reached only in the waning days of the legislative session, and that contributed to its failure to pass it before the final gavel. It also was tripped up by a partisan divide in the House over a flood-related bonding bill.

"We were able to move it along as far and as fast as we could, but we ran into the legislative crunch," Rice said, an assessment with which city representatives agreed.

The merger would help the city by reducing its annual payments for police and fire pensions. It would cut next year's property levy for the two funds by nearly $21 million. That would be a big help in a year when the city's bill for financing a 2010 merger for its closed pension for general city employees jumps by eightfold to $20 million.

The deal would allow the city to slash its police and fire pension liability. That's partly because it would switch them to the actuarial assumptions of the state fund, which assume higher investment returns and lower pension increases. It's also because the deal would give the city 11 more years than it has under current law to fully fund the two plans' deficits.

However, the deal would come with several costs for taxpayers. First, the city agreed not to oppose a firefighter bid for a last-minute boost in their pensions to bring them to parity with police. That would cost the city $7 million in future pension costs, figured in today's dollars.

Moreover, the deal would substantially boost the checks for police and fire pensioners, all of whom were hired before mid-1980. The police pension would jump by 43 percent to $64,000 in 2015, for example. That's a sweetener by the city that recognizes that pensioners would see much smaller cost-of-living increases under the statewide plan.

The city calculates that the police deal will save the city $34 million in future payments, figured in today's dollars.

The merger proposal got sidetracked along with the omnibus pension bill that was its vehicle. After House DFLers largely opposed the flood bonding bill, the pension bill's House author didn't move it forward. That was Rep. Morrie Lanning, R-Moorhead, whose district would have benefited from much of the flood work.