Pension woes will haunt Atlanta’s next mayor

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.

22 comments Add your comment

madmommy

October 8th, 2009
8:15 am

Most companies have already done away with pensions and this is one of the reasons why. They should have to do what most Americans are already doing, which is being responsible for their own retirement. The thought of raising pay to reduce retirement down the road is a joke. How is it that they opt out of Social Security when I thought everyone paid into the “system” are they still able to draw off of it down the road? I can totally see the city raising taxes, adding fee’s and still not paying the bills as they should since that is the track record that they have already.

I don’t deny that people earn this, but I have worked my whole life and I have to plan for my own retirement and I feel they should to. It might not be the popular choice, but I feel it’s the most honest.

Mutts R Stupid

October 8th, 2009
8:45 am

Anyone with half a brain will vote with their feet and move out of the city limits of Atlanta. Too many crooks have run the city into the ground, and I include the police, firemen, and city employee unions in that “crooks” category, exceeded in their greed and crookedness only by the mayors and city council members. Everyone move out, including businesses, and let the worthless city default on their bloated pension obligations. I recall the comment by Maynard Jackson regarding the street lights on I-75 North: “I am not going to pay to light the roads for a bunch of white people from Cobb County.” And he wondered why we called him “Jubba the Hut.” I for one jumped up and clicked my heals together in joy the day he died, may he burn in hell for the rest of eternity.

Dunwoody Mike

October 8th, 2009
9:18 am

Madmommy,

My father was a New Jersey firefighter, and has a good pension. He also receives SS every month. Not much, as he did not pay much, but it is still there. Even if one has a pension, minimum payments are still required for SS.

Cutty

October 8th, 2009
9:35 am

Madmommy, federal, state, and local governments are exempt from paying ‘into the system’ if they somehow provide another retirement vehicle for their employees. The Feds have Thrift Savings Plans which in a way are more like 401Ks. The city will have no other choice but to return to the SS system or the pension issue will bankrupt them. Might as well do it now than wait 20 years. There is no revenue around the corner, or down the block. The metro area is moving north, not into Atlanta. The water bills are too high.

Joan

October 8th, 2009
9:35 am

Discontinue those pensions. Most of us will never see a pension. There are generations of Atlanta politician’s relatives living on that pension dole. What a filthy, corrupt city this is.

Joan

October 8th, 2009
9:37 am

Kyle: today Harrry Reid is said to have lumped a health care bill, with a public option, into a recently passed tax bill. This is simply a shell game to get healthcare passed–with the public option. Look into this and comment please.

Kyle Wingfield

October 8th, 2009
9:41 am

Just to be clear: The city and its employees don’t pay into Social Security, so the employees do not draw from Social Security. The question is whether the city ought to join the system (though any city employee my age ought to be dubious as to whether Social Security will be any more likely than the city of Atlanta to pay the benefits it promises, by the time we retire in 30-40 years).

[...] Some opinion: Kyle Wingfield says pension woes will haunt Atlanta’s next mayor. [...]

booger

October 8th, 2009
10:09 am

I have some experience with pensions and the thing that amazes me is the fact that Atlanta seemed to be caught by surprise by the current pension “crisis”. Actuaries can tell you what your pension costs are going to be for your current obligations, and for any increases proposed to your plan. There is no way Atlanta officials did not know what the changes made in the early 2000’s was going to cost. As politicians will do, however, they ignored this because it was a future cost, and it solved a current problem. The problem became a crisis when the recession erased a large percentage of the pension fund balance. This was certainly forseeable, and should have been planned for. I think it would be interesting to audit the investment managers for these funds. I’ll bet one would find that corruption and cronism has found it’s way into the fund management business just as in most areas of Atlanta’s government.

corruption fighter

October 8th, 2009
10:28 am

every sane person should move out of the socialist and communist city atlanta,actually the entire fulton/dekalb county
thank god, i dont have to pay for marta,grady and all union city employee salaries and pensions.

Chris Broe

October 8th, 2009
12:02 pm

This is the best article Clyde Ringworm has written. Informative. Authoritative, (yet plain-spoken). Original and Focused.

Bravo.

Madmommy

October 8th, 2009
1:10 pm

So, if workers don’t pay into the system, are they then exempt from utilizing other benifits that SS offers? I know that it might not be much that they are getting at retirement, but if I don’t save and invest, then I am left with nothing at retirement regardless of how many years with a company.

I feel for the next person in line for Mayor who has to take that this issue on, but there has to be someone who’s forward thinking enough to figure out a solution that will not affect all the people only to help a few.

What about an option that allows for each person to pay into their retirement pension to get a match from the city? This way the state could reduce the amount they are paying out and the individual takes on half of the responsibilty thus reducing the cost. Yeah, in realty most will not like that option, but it is what most of us get in the form of a 401k which has been drastically cut if not suspended for the time being.

Jack

October 8th, 2009
1:25 pm

If pension benefits are not available to new civil service employees, maybe they’ll seek employment in the real world.

jellyton D

October 8th, 2009
1:44 pm

The average City of atlanta Deputy assistant Executive Administrator and all her underlings could not possibly be expected to understand and maintain a 401k. That is why the City remains so fundamentally corrupt. It is a jobs program. Bill Campbell institutionalized $$ corrpution and made it acceptable in the Mayor’s office for the first 8 years(with more than a little help from his predecessors), and Shirley Franklin has turned the youfs loose on the whole city to rape, plunder, and murder for the last 8 years. The whole place has the stench of 16 years’ worth of degenerative rot. I get to retire, I hope, in the next 2 years, and no more will I pay $8,800/year in property taxes just to be close to work, or to provide a geographically advantageous front do’ kick-down employment opportunity for the children of the nearby neighborhood. No, my retirement gift will be to see Atlanta, Georgia, in my rearview mirror. There is nothing left worth saving here.

Hillbilly Deluxe

October 8th, 2009
3:25 pm

Since I don’t live in the City of Atlanta, it’s not for me to say what they should do but this problem stretches far beyond Atlanta. The next big, ticking time bomb in this country is unfunded pension liabilities in both the public and private sector. When that hits the fan, it’s going to make the Wall Street meltdown look small by comparison.

RJ Morris

October 8th, 2009
7:04 pm

Kyle, how would privatization of all city services, excluding firefighters and police, affect the pension payments? This was suggested in Franklin’s Bain Report as a way to cut costs overall, therefore if the privatization plan was implemented, many of our current city employees would shift to these private companies (assuming they are competent) and off the pension books. I fully realize 3/5 of the pensions are retirees and already entitled, however it would surely make a huge difference. And the privatization savings would also help offset the remaining pension costs.

Why not do an opinion column analyzing how privatization could relate to the pension crisis? Surely you see your column contained no solutions, so why not look at some viable options such as this one?

@@

October 8th, 2009
8:19 pm

Lock ‘em up in the fed’s SS box. If they’re smart they’ll maintain outside connections for their great escape.

It’s all falling apart…crumbling before our very eyes…going the way of the dodo bird.

I’m finding I have less and less to say or is it less of a say? Who knows anymore? I’ll just continue on as though all is well.

David Axelfraud

October 9th, 2009
8:02 am

Kyle, not to be a jerk or anything but you seriously need some more energy on your blogs. Bookman has a new topic up on his blog every hour or so. Might help if you keep up with current topics a little bit more. Bookman already has a blog up about the sham of Obama winning the Peace Prize.

3rd Party Guy

October 9th, 2009
8:56 am

It’s interesting that nowadays it is only (mostly) government types and corporate execs that have pensions. Cut them all across the board and eliminate all future pensions for new hires. Time to join the real world, public servants.

Oh, have I written the words “unfunded liabilies” lately? Here you go. No charge.

UNFUNDED LIABILITES!!!
http://www.truthin2010.org/

Mike Jones

October 27th, 2009
2:04 pm

The City of Atlanta plans on borrowing 10 Billion from the Feds…(aka taxpayers all over the state and nation). They will cover their pensions and repair the crumbling infrastructure.. aka bridges, roads and sewer systems all over Atlanta, then quickly file for Bankruptcy protection. If you try and stop them. They will shout Racism…

[...] try to keep as much of what they have as possible. The taxpayers are right, because the city simply can’t keep the promises it made to employees when it increased benefits in 2001 and [...]

[...] between Atlanta’s employees and its taxpayers has been building for years, and it will be the No. 1 issue for the city until it is resolved. But it’s no accident that the hostilities began [...]