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Raising Questions About The Cost Of Police Contract, Pension Obligations

August 24th, 2017 · 7 Comments · City Budget, City Council, Firefighters, Law Enforcement, News and Events

As the police union contract heads to arbitration, see story here, citizen fiscal observer John Marshall Lee asks about the price tag for the 2015 retroactive contract.

From Lee:

Did I miss something in the CT Post headline article this morning? Brian Lockhart provided some of the Police Department contract history but missed the price tag for the 2015 settlement? In 2015 the Finch regime agreed to terms with the Police that included the transfer of pension responsibilities from Bridgeport Plan B to State of CT Municipal Employee Retirement System (MERS). MERS allows retirement benefits to be based on highest three year earnings including OVERTIME. Plan B did not. The State merely administers and keeps records. It makes no contributions for MERS. All contributions are local responsibilities. What was the cost of the transfer of responsibility?

In 1999-2000, Ganim wrestled with public safety pension benefits representing a $350 Million liability at the time. His solution was to trade that obligation, assuming that the City could invest the borrowed money and meet retirement obligations. And it may have looked like it was working for a year or two but investment markets are not guaranteed. More than $30 Million of expense from Police and Fire budgets each year began and continues until 2029 to pay Pension A bond cost. That is $900,000,000 repaid to bondholders over 30 years because the City had not regularly set money aside to fund retirement liabilities incurred when the City entered labor agreements.

Today the City has only $60 Million of the original $350 Million left invested. Is that enough to pay out $28-30 Million annually in the near future to Plan A retirees? Obviously, NO. How do we fund this? We contribute from current taxes up to another $15 Million or more (especially when the fund becomes exhausted) PLUS we continue to repay the 30-year pension obligation bond. Has Joe Ganim revealed how his bonding idea from 2000 has developed flats and that we need to pump up the tires with new funds every year? What will the cost of Plan A funding total when we are through? Since it depends on how much those funds earn year-in and year-out, it remains an unknown, but actuaries can show us the range of costs, if we were to ask them.

Today Mayor Ganim wants to bond again for a pension liability, and we must ask what’s the story because of the Plan A track record above. He says it is a no-brainer because he compares the current 4% borrowing rates for a bond that will last 26-28 years to the absurdly elevated assumed interest earning rate for the MERS (or Plan B pensions). If a pension plan assumes 8% but only earns 5% or less as has happened on average for both City plans and MERS, then EXTRA FUNDS have to be added in future years as demanded by the actuaries. So Ganim has gotten legislative approval to fund over $90 Million to settle the 2015 public safety agreements but still needs City Council approval. Bonding will add over 25 years of interest expense to our City payment schedule of nearly another $90 Million. Has he asked the actuaries to provide the City with a likely required flow of taxpayer dollars if MERS earns an average 4.74$ in the next ten years as it did since 2006?

Why not pay one of the schedules provided by MERS to meet the past service liability created by overtime credit at $7.5 Million annually and see if rising markets over coming years bail out our largesse to public safety? In any case don’t taxpayers deserve to know the price tag of municipal contracts? Three weeks ago I asked several respected observers what the cost of the 2015 negotiation was. There have been no answers, yet.

Did the contracts obligate us to $93 Million (if MERS earns 8% in the average future), to $270 Million (if actuaries lower the interest rate realistically to 7% assumed for the future) or a lot more if the next 10 years call for added City payments above and beyond the suggested Ganim2 bond amounts annually? The Mayor has said we are a poor city to those in Hartford who listened. Why is a poor city providing such amazing and expensive benefits to about 400 employees? Why vote for something we cannot afford in any balanced analysis? Why keep everything so secret? Is it time for OPEN, ACCOUNTABLE, TRANSPARENT and HONEST response? Time will tell.

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7 Comments so far ↓

  • Ron Mackey

    Donald Day // Aug 20, 2017 at 2:26 pm
    The remaining firefighters and officers that are left from Pension Plan A went to MERS as well. The Pension Plan B people threw millions in the MERS pot, but who paid for Pension Plan A people?

    Ron Mackey // Aug 20, 2017 at 8:04 pm
    Don, it’s funny how this has been lost in the equation, the Pension Plan B people threw millions in the MERS pot.

    • John Marshall Lee

      Andy,
      Good comments. The ordinance from years ago has been cemented into contract language as well, but the secrecy and the silence and the stealth of solving this overtime expense with a bond that only covers the City wholly IF MERS earns 8% annually rather than the 4.74% they have earned annually for the past 10 years. So the City will have to pay more every year, although GANIM2 says nothing about that, nor does our City bond Council, nor does REP. Stafstrom or anyone else who knows the drill but keeps their mouth shut. Andy, who can open Mario’s jaws wide enough on this one to utter a comment? And external overtime used to be called a profit maker for the City, but under the current MERS operation it is a profound loser, because the taxpayer is the only one paying for the OT benefits. And I keep asking for a City comment on what is the expense in today’s financial conditions of the 2015 agreement? $93 Million if MERS earns 8%? $270 Million or more if MERS earns 7%, $500 Million or more if MERS continues to earn less than 5% with the investments at risk all the time? Divide any of those numbers by 25 or more years and currently that is another drag on annual City operating budget? So before mediation in 2017 how about back to the drawing boards and acknowledge the huge, unaffordable contract entered into 2 years ago retroactive to 2012-13? And put that on the scales with a City that barely exceeded by $400,000 last year the amount the City contributed the year before to benefit 21,000 youth in school? And how to parents who vote feel about being fooled all of the time? Time will tell.

    • John Marshall Lee

      Ron,
      You raise two important observations:
      1. Why were the handful of City employees who fell under Plan A for all of their career up to 2015 allowed to move to Plan B in which they had not been included originally? What was the expense of that generosity? Guessing that Deputy Chief Honis who reportedly is receiving $180,000 of retirement pay annually would have been receiving around $100-110,000 annually. What is the present value of the extra $70-80,000 annually to Honis for the rest of his lifetime? Is this Bridgeport brand of exceptionalism?
      2. Assets from both Fire Plan B and Police Plan B were transferred to MERS but they only were able to cover base retirment benefits BECAUSE BRIDGEPORT NEVER RESERVED FOR RETIREMENT BENEFITS THAT WERE BASED ON BASE PLUS OVERTIME EARNINGS. It’s all on the taxpayer and appalling that Mayor Ganim continues to be so quiet on the price tag, isn’t it? Is this what tough management is all about? Does this prepare him for time in the Governor’s Mansion? When suburban voters take a look at Bridgeport pensions and Ganim’s bonding solutions, what will they see? Lots of “red”? Time will tell.

  • Andrew C Fardy

    There is one sure way to save the city millions in pension payouts that in many cases double and triple what should actually be paid a retired member of the police and fire department.
    The simple solution is to stop using the w-2 form to determined what has been made by an officer. The actual contract before this latest give away stated that an officer doing 25 years service was entitled to 50 % of his base salary.
    Under McCarthy and Osborne they negotiated a pension contract that allows OT and other income to be used to calculate persons pension. In reality a patrolmen(women) could retire at 100% or more of his base salary. We have a city oridinance that requires contractors to hire cops to direct traffic at construction sites. Under McCarthy this outside OT is added to the cops salary and calculated as part od his pension. This is an easy fix repeal the ordinance covering outside OT and hire trained civilians to do this traffic duty. Many cities in CT do it this way. The problem is we have no one in authority with brains and balls to do what has to be done.

  • Tom White

    Does everyone understand what JML has been trying to get the city council to understand?
    The inclusion of overtime inflates the earnings of police officers that their pension is based on. Any shortfall in contributions to MERS is the responsibility of the taxpayer to cover. No problem. Issue bonds that will reduce the cost to the city based on unrealistic savings. Brilliant!
    All in favor? Aye! Motion to adjourn.

  • Ron Mackey

    This conversation seems to be a one way street and that’s about the money being paid out but again for the third time:
    Donald Day // Aug 20, 2017 at 2:26 pm
    The remaining firefighters and officers that are left from Pension Plan A went to MERS as well. The Pension Plan B people threw millions in the MERS pot, but who paid for Pension Plan A people?

    What’s happening with Pension B funds, is it making money or not?

    • John Marshall Lee

      Ron,
      If you go to CAFR-2016 you can see answers to your question presented for Plan A, Plan B Police, Plan B Fire and Janitor and Engineer Plans on page 68-69.

      An interesting fact you will discover is that actuaries have lowered the interest crediting rates on all plans from the 8% assumed by MERS. Plan A assumes 7% earnings and shows the trustees receiving $15,488, 177 from the taxpayer in 2015-16 but still having despite investments, a $250 Million net pension liability.

      To your point Plan B Police has a 3.57% assumed return and Plan B Fire a 4.96% return. Police shows a $63,713,142 net pension liability and Fire shows only a $9,825,249 liability. Those especially interest may speculate on why we have those differences for sure.

      But a reality check might ask why we are using REALISTIC earning rates for these plans and not for those with our largest liabilities. Would it be to scary to look at the MERS liability assuming 4% earnings? And what might we say about how reasonably run were the Plan B trusts back in the day? Why did we change? Who will tell us about the greed that drove the price tag right out of the picture so that no one knows the cost of the 2015 public safety labor agreements. Was the CTPost curious at the time? Did they ask and not receive? Look at what the failure of “public information” has brought us to today? Ed Adams, after nearly two years in office, perhaps you can explain how a very expensive labor agreement escaped your efforts as public integrity officer? Open? Accountable? Transparent? And honest? Time will tell.

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