Call it the first shot of the pension wars.
After watching Atlanta’s pension costs nearly triple over the past decade, the Fulton County Taxpayers Foundation sued the city last week. The plaintiffs argue that the city didn’t follow its own procedures when it increased retirement benefits in 2001 and 2005, and they want a Fulton County judge to nullify those richer benefits.
This showdown 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 Monday.
The unfunded liability for the city’s three funds — for police, firefighters and general employees — is $1.5 billion. That hole is almost five times as large as it was in 2001, when the plans were considered well-funded; today, the liabilities are double the assets.
The panel offers a detailed breakdown of how Atlanta came to this low place. As many people expected, the poor performance of the stock market over the past decade had a sizable impact, representing about half the problem.
The other half relates directly or indirectly to the plan changes of 2001 and 2005. The direct effects include a larger payment for each year a pensioner worked, and the fact that the city applied these increases retroactively.
The indirect portion relates to how employees reacted to the benefit changes: Since 2001, 90 percent of police officers and firefighters have retired by age 55, about twice the rate that actuaries expected.
Now, it’s possible that the actuaries’ estimates were just wildly wrong. But common sense suggests that many officers are retiring earlier than expected because 20 years’ service now gets them the same pension they previously needed 30 years to earn.
Take away those direct and indirect effects, and the city’s pension payments would have been some $73 million lower last year — still an increase from 2001, but a much more manageable one.
Worse still, we are talking only about retirees’ pensions, not their health care expenses. Add those, and the unfunded liability could reach $3 billion. And the city would have to devote $240 million a year — almost half its current budget — to all retirement benefits.
The next step for Reed is to design some choices for addressing these soaring costs. Standing still is not an option, and Reed said after receiving the panel’s report that he would not raise property taxes to pay for pensions.
Legally, the city can’t unilaterally change the plans for existing workers. It can do so for future hires, but that wouldn’t begin to fill today’s shortfall. State law precludes cities from declaring bankruptcy, which would allow Atlanta to restructure its benefits. That leaves negotiating changes with workers, who will defend their pensions like the Alamo.
And that’s where this week’s lawsuit comes back in. The plaintiffs won’t comment publicly on their suit, and it’s hard to predict its odds of success.
But the suit can accomplish two things even if it loses in court: It’s a first legal step (challenging the retroactive nature of the ’01 and ’05 changes is an obvious step two), and it serves notice to the city that taxpayers expect real reductions in pension obligations.