A $100 million problem, one time, is bad. A $100 million problem every year, for years on end, is a crisis — the crisis that awaits Atlanta’s next mayor, in the form of astounding pension liabilities.
In recent years, Atlanta has spent nine-digit sums annually to fill a $1.2 billion hole in its retirement funds for police, firefighters and other city workers. These payments represent one of every six dollars that City Hall spends.
Taxes have little chance of moving lower, or the quality of services higher, while this is the case. High-profile crimes get more attention, but unfunded pensions will haunt the next administration like nothing else.
Howard Shook, chairman of the City Council’s finance committee, jokes that the winner of the Nov. 3 mayoral election “is probably going to be asking for a recount” once he or she realizes the extent of the problem.
The candidates’ solutions so far suggest they don’t fully grasp it, or haven’t thought enough about how to overcome it. The question is whether any of them has the gumption to try negotiating changes with the unions.
Some of their proposals, such as joining the Social Security system (the city has opted out of it for decades) or reducing some of the benefit increases workers got in 2001 and 2005, might help to avoid piling up more debts that would come due decades from now. Changes to benefits for future employees are a must.
But tweaking future benefits would do little about the money the city already owes. That much is clear from the latest actuarial report for the General Employees Pension Fund, which covers departments other than police and fire and represents about half of city pension obligations.
In this general fund, almost three-fifths of the debt is owed to people who are already retired. Nothing can be done about that.
Tying the city’s hands further, 90 percent of the pension obligations are already “vested.” That means current or retired workers have a legal right to the money.
The city has already extended a deadline for funding its pensions, to 2030. That reamortization provides some short-term budget relief, but at a steep cost to future taxpayers.
The idea, Shook says, is to allow the city to catch its breath during the recession, then resume funding the liabilities more quickly once its finances recover. But that will require substantial political nerve; elected officials will be tempted to direct increased revenues elsewhere. As Shook says, “We’re saying we’re going to have to go off sweets in a year or two. Well, we’ll see.”
Another suggestion by mayoral candidates is to raise revenues. The way they would do this varies: collecting more fines and fees, borrowing from the federal government, cutting waste, investing pension funds more aggressively. Anyone thinking about a tax hike must be saving that idea for after the election.
In reality, the city may need new revenues simply to make up for a coming crash in commercial real estate. Again, that’s a possibility that’s whispered about privately but left unsaid publicly.
So here’s one last thing no candidate will say now: The way out of this fiscal catastrophe is a negotiated deal with labor.
Employees won’t like that prospect. But there is no security for them in benefits that are promised but may not be deliverable. There is no security for them in knowing a good pension awaits them if they might first be laid off to cut costs.
Unilateral action would tie up the city in court, eating away at any potential gains. So talks will be needed.
The goal could be to raise salaries in exchange for smaller pensions. It could be to claw back retroactive pension increases given to police and firefighters. It could be to get union assent for selling city assets, to avoid a labor dispute over such a transaction.
The negotiations could be excruciating, and politically costly. There may be another way. But the right mayoral candidate is the one who has the fortitude to see this task, or an equally thorny one, through to the end.