January 24, 2013
Pension plan seen as stopgap
Governor proposes deferred contributions for municipalities
City leaders say it is too early to tell if Cortland wants to participate in Gov. Andrew Cuomo’s proposed pension reform program aimed at helping municipalities ease the rising cost of retirement benefits by borrowing money to lower annual contributions.
The town of Cortlandville has said at this point, there is no way it would use the program. Town Supervisor Dick Tupper said it is not a fix to the problem, while city Director of Administration and Finance Mack Cook said it is a “push, rather than a fix.”
The “Stable Rate Pension Contribution Option” allows municipalities to borrow money from the state, at a to-be-determined interest rate, to help the burgeoning retirement costs many municipalities are facing.
Municipalities can opt into the program, and also opt out at a later date. The goal, the state says, is to delay the sudden rise in pension payments.
It is part of a $134 billion state budget proposal. The deadline for the state Legislature to have the budget passed is April 1.
In Cortland, the talk of pension costs has been ongoing, with Cook stressing how much of a burden the state-mandated pension plans cost. Cook ran some numbers and determined that if he were to opt the city in, then write the 2014 budget, there would be $529,175 in extra money that would have to be paid back to the state at a later date.
The city budgeted $2,378,076 in retirement expenses for 2013, according to Cook.
The city budgeted 25.4 percent for active police officers and 23 percent for firefighters for 2013. That is based off each person’s pay, so if an active police officer makes $100,000 per year, the city has to pay the state $25,350.
If the city were to opt in to the plan, contributions to police and firefighter pensions would be lowered to 18.5 percent, with the state paying the extra cost, Cook said.
For all other municipal employees, those who are not police or firefighters, the amount can be lowered to 12 percent.
For 2013, the city has 17.7 percent budgeted for workers’ pension plans, which are on a tiered system.
Cook said at this point he does not know what the city will do.
“It’s too early to tell without the state giving us an interest rate,” he said. “While this does not fix the issue, it is progress in Albany. For years, the feeling in Albany is that it’s our responsibility, so we have to fix it. I think the governor is sending a slightly different message this year and I credit the mayors of some of the big cities who have been voicing this issue for a while now.”
Cook said municipalities have had the option to defer pension costs at 3 percent interest for the past few years. The city has not used that option, which states that a municipality can borrow a certain percentage based upon a formula, according to Cook.
Last year the city spent $1,962,662 in retirement expenses.
Cook said. He said he does not have an exact figure yet for how much will be spent in 2014.
“There are many questions to this, as well as other players,” Cook said. “How will credit agencies and people who buy municipal bonds react (if we opt in)? We would be taking on long-term debt.”
In December, Cortland’s bond rating was raised to A- from BBB+ by Standard & Poor’s. Cortlandville has a AAA rating.
Cook said the city is carrying about $10.5 million in long-term debt from Other Post Employment Benefit Liability, which is an obligation toward health care. He said he is unsure if the city would be able to handle more long-term debt.
The city pays a certain amount every year into a state retirement package, which is then doled out to those who receive retirement benefits. The money builds up so that when an employee retires, he or she can continue living off of a retirement check.
Tupper said the town makes sure to pay its retirement costs in full each year, as he does not want the town incurring any long-term debt.
“I am more interested in reforming the system than I am borrowing money that will just create problems later,” Tupper said. “We pay a lot of money each year per employee, so a reform would be a great step in the right direction.”
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