City In Bondage

City fiscal observer John Marshall Lee addressed the City Council Monday night on the subjects of pensions, bonding and overtime.

Tonight on your agenda is an item, #105-16 to refer to committee, an idea from Joe Ganim’s “playbook” that has had very little discussion.

“All full-time employees of the City, except the Board of Education personnel, police, firefighters, janitors and engineers who participate in other plans described below participate in MERS” is a quote on page 55 of 2016 Comprehensive Annual Financial Report (CAFR). Educators are covered through the Connecticut Teachers Retirement System and police and fire retirement benefits were transferred in recent years from Plan B to the State of CT. But to which fund? Did the external auditors leave out information about our Police and Fire plans from the 2016 CAFR?

Background: Retirement plans accept contributions today, to invest, to meet benefit targets that are projected. Assumed rates of investment return and mortality data about how long people will live are used. A major problem in recent years has been the difference between the assumed rate of return sought by a plan and actual market returns. Page 59 shows that Bridgeport’s net pension liability for most MERS employees when an 8% assumed interest return is used was $31,237,539, but when 7% is the assumed rate, the taxpayer liability increases to $119,518,938. I suppose if the rate was further reduced to 6%, that the current $31 Million City responsibility rises to $200 Million or more?

A turn to page 85 of the CAFR indicates that the investment rate for City Pension Plan A, established by Mayor Ganim in 2000 (that has lost tens of millions in down markets and cost taxpayers an added $100 Million already), had an assumption reduction from 8% to 7% in 2015. Was this reduction a result of your deliberations? Is it noted in minutes? Who made the decision to reduce from 8% to 7% in 2015? Was it an actuary employed by the City? I do not know. But I think it might be wise if you discover how this works since you do vote on contracts and bonding on behalf of taxpayers.

Page 85 indicates that the change from an 8% to a 7% instantly increased Bridgeport’s Net Pension Liability by $75 Million and that from 2014 to 2016 our asset position relative to the liability decreased from 40.59% to 23.42%. Good news? Not!!! Aren’t you really curious about the actual plan earnings rather than the assumed earnings? For instance if we were earning 10% per year and assuming 8% it would seem our problems would be under control. Actually in the three-year period for Pension Plan A, page 93 reports that our average return was 3.15%. We project at 7% or 8% but earn at 3-4%? (Even Moody’s suggests a 5% assumption.) And then the actuary tells us that we must fund the increased liability over a five-year period. Should we bond it?

Other liability for retiree lifetime healthcare, called OPEB increased in 2016. Page 76 indicates the City contributed $32 Million, a part of the obligation but the liability still increased by an additional $42 Million and stands at $251 Million. Should that be bonded?

POLICE OVERTIME: The Council decided in 2012 and 2013 to approve Fire and Police contracts and moved them from the fiscally sound Bridgeport Plan B to the State Retirement System, a move that allowed overtime hours to become part of the retirement benefit calculation (so that a recent long-term high-ranking police officer is now earning $180,000 per year in retirement, it has been reported). Who is funding this swollen benefit? What is the price tag for this change? Is it the $88 Million contemplated by 105-16?

Did you see a cost projection in City paperwork when you approved the contract? The UNFUNDED ACTUARIALLY ACCRUED LIABILITY today is about $88 Million. It is to be paid over 28 years at $7.5 Million/A for a total of $207 Million. Another alternative has been offered. And a plan is before you to bond instead at 4-4.5% guaranteed for the better part of 30 years. (CT pension investment returns are among the lowest 25% nationally.)

But you see the price tag of Police and Fire OVERTIME for the first time. $88 Million!! Why bond it specifically when the City has other liabilities that are equal or greater and growing faster? The projected, assumed, NOT GUARANTEED, returns that can be reduced by actuaries create increasing accrued funding liabilities for us as they decrease. Is this a guaranteed standard of comparison on which to base an annual savings? Perhaps it is not so simple? Perhaps it takes a study of all City liabilities? Why the rush? If the State is in trouble, perhaps restructuring of retirement liabilities should be completed first before the City binds payments to another bond? Time will tell.