By John Schaffner
During his mayoral campaign last year, Kasim Reed highlighted reform of the city’s three pension plans as one of the most critical issues facing the city.
“The stark reality is that one out of every five tax dollars from Atlanta’s general fund is going to pay for a pension system which is increasingly unsustainable,” the newly elected Atlanta mayor has said.
“We need to face this challenge head on, being mindful of the responsibility to taxpayers who fund that pension system, without breaking faith with the public servants who have dedicated their lives to the city.”
Reed says he’s trying to ensure the long-term financial solvency of the city while also recognizing the service and dedication of thousands of employees.
But the problem he faces is huge. The amount the city spends yearly on pensions has more than doubled since 2001, rising from $55 million that year to an anticipated $125 million in the 12-month period that ends June 30. By 2015, the annual cost to the city is estimated at $160 million.
More than 20 percent of city spending is devoted to pensions. That nearly equals the money spent to fund the police department.
One of Reed’s first acts as mayor was to convene a 14-member Pension Review Panel to perform a new analysis of the issue. The new review, by a panel comprised of experts and stakeholders, is charged with examining current pension plan problems and identifying possible solutions.
The panel’s work follows three reviews completed last year.
The first report came from a study by an Atlanta City Council Select Committee on Pensions co-chaired by Dist. 9 Councilwoman Felicia Moore and Dist. 7 Councilman Howard Shook. That study, which resulted in a report issued Aug. 13 of last year, looked at the impact changes made in the three plans—for general employees, for police officers and for firefighters—by council in 2001 and 2005.
The committee’s report caused the office of then-Mayor Shirley Franklin to commission the Segal Company to do a comprehensive review, which resulted in a Dec. 8 report. The purpose of that review was to identify where the city could find cost savings while still achieving its fundamental pension goals: to be competitive in the local marketplace and to ensure that employees receive a fair pension benefit.
The Segal review report was followed on Dec. 15 by a “Pension Assessment-Final Report & Recommendations Presentation” prepared by city accountant Lisa Y. Gordon that summarized the findings and recommendations.
At the first meeting of Reed’s 14-member pension review panel, chairman John Mellott presented the options panel members faced as ways to pay for Atlanta’s skyrocketing pensions: increased property taxes, a special 1-percent sales tax or a cut in pension payouts.
The panel also listed options to cut pension costs, included laying off city workers, forcing employees to take time off from their jobs without pay, or requiring city workers to pay more money into their pension accounts.
Reed has said that raising property taxes is not an option to be considered.
Reed was quoted in a press release from the city about the Feb. 22 meeting as saying it will be tough for the city to provide services, such as fixing sidewalks and adding more parks and green spaces, because of the amount of money that must go to pay pensions.
He said the potential greatness of the city “is really in the money we’re spending on pensions. It’s literally absorbing all of the dollars.”
The three pension plans covering police, firefighters and general employees have long been underfunded. In 2001 and 2005, Atlanta City Council approved several changes to increase retirement benefits. Those changes, however, were made without determining a way to pay for them.
Meanwhile, the three pension funds have not earned as much as anticipated and, the plans are about 53 percent funded, reported Mellott, a former publisher of The Atlanta Journal-Constitution and a CPA. The recommended average is 80 percent.
The city reportedly now has an unfunded liability of about $1.5 billion. In 2001, the unfunded liability was $321 million.