Melissa Bailey Photo
Police union members listened in on the mayor’s pension announcement.
City workers may have to give up cost-of-living increases when they retire in order to avoid “bankrupting” the city with rising pension costs, Mayor John DeStefano declared.
DeStefano made that declaration in a press conference Monday afternoon at City Hall. He presented the results of a recent valuation that shows the city needs to pay another $9 million into its two pension funds next year on top of the $30 million it already pays. The increase in city contribution comes after the value of the city’s two pension funds plummeted in the recession.
That $9 million represents a 2 percent increase to the city’s current $472 million budget. To pay for it, the city would need to raise taxes by 1.84 mills, which would mean a “$235 tax increase on every house in New Haven,” DeStefano said.
Police union brass Monday listened to DeStefano (pictured)—then questioned his public approach to resolving labor negotiations—as he laid out the city’s financial position. The mayor recommended nine ways that workers should cut retirement benefits to balance out the increased costs. All the mayor’s suggested changes need to be decided through labor talks or arbitration.
The call comes as New Haven is negotiating with 13 unions whose contracts have expired and two more (police and fire) that expire on June 30. With the city facing yawning budget gaps in coming years, and therefore seeking dramatic pension and health insurance givebacks, the atmosphere has turned contentious.
Rising pension costs are the single biggest item contributing to the city’s budget gap, which is projected at $57 million next fiscal year, then $68 million, $85 million and $99 million in subsequent years, according to the mayor.
The city has two pension plans: The City Employee Retirement Fund (CERF) and the Police and Fire Retirement Fund (P&F). Together, the plans cover 2,000 active employees and 2,200 retirees. Teachers and school administrators are covered by state-run pension plans to which the city does not contribute.
Both funds took a nosedive in the economic downturn: CERF lost $49 million in the two years since June 30, 2008; P&F lost $36 million. As of June 30, there was $243 million in CERF and $148 million in P&F.
The drop in value leaves both plans drastically underfunded: CERF is 47 percent funded, and P&F is 52 percent funded. Those numbers were reached through a recent valuation, using an actuarial estimate, which takes into account the ebbs and flows of the funds over the past five years. The valuation was done by the city’s longtime actuary, Hooker and Holcombe, Inc.
Hooker and Holcombe concluded the city has a $463 million unfunded liability; that means if all eligible workers were to retire at once, it would have only about half the money it needed to pay them.
At current funding levels, CERF and P&F are due to run out of money in 15 and 19 years respectively, the mayor said. The actuary recommended increasing the city’s contribution to the pension funds by $9 million next year, bringing the total to $39 million. That contribution is only shooting up: following year, the actuary recommends the city pay $53 million to its two funds.
DeStefano said while other cities have declined to pay the actuarial required contribution (ARC), New Haven will heed the actuary’s guidance and pay the full $39 million next year.
“We will make the required contribution,” DeStefano pledged.
DeStefano said those who receive the benefits are not to blame, but the city cannot afford to continue paying for the plans as they are currently designed.
The mayor said he won’t eliminate the pension funds. And he won’t ask workers to switch to a defined-contribution from a defined-benefit fund. He did lay out a list of suggested givebacks in benefits that he said would help close the budget gap—and avoid “bankrupting” the city.
Cost Of Living, Overtime Pay
For example: Retired firefighters, cops and city workers all get a Cost of Living Adjustment (COLA) that increases their pension payments post-retirement. The adjustments go up or down (usually up, except for last year) according to the Consumer Price Index. The percent change is capped at 4 percent for cops and firefighters and 3 percent for other city workers.
City Hall proposes lowering the cap on those cost-of-living adjustments—or possibly eliminating them, according to Mark Pietrosimone, the city controller.
That’s one of nine recommendations the mayor laid out on a large poster board at the press conference.
Another concerns whether the thousands of dollars cops and firefighters make in overtime pay get included in calculations for pension payments. Right now, cops hired before Oct. 1, 2009 get paid up to 70 percent of the average highest four years of total earnings, including overtime pay—which means some of them make even more than the chief after retirement.
For example, the current plan allowed former Assistant Chief Ariel Melendez to retire with a $124,500 annual pension, when his salary was $105,000. The mayor has refused to fill that post until he succeeds in pursuing changes to the pension rules.
The union has already made concessions for newer cops. Cops hired after Oct. 1, 2009 must join a hybrid pension plan. They don’t get to count their overtime or extra-duty pay in their defined-benefit pension; it’s based on their budgeted salary in the year they retire. Pension contributions for overtime and extra-duty work go into a defined-contribution plan, a 401(k), instead of a defined-benefit plan.
DeStefano proposes further concessions along those lines so that the city pays a defined contribution pension only for a cop’s base pay.
He proposed the same change for firefighters, who get paid the 70 percent of the average of their five highest years salary plus 50 percent of their extra-duty income.
DeStefano also called on workers to pay a greater share of their retirement costs. Right now, firefighters pay 8.75 percent, cops pay 9.75 percent, and other city workers pay 5 to 7 percent of their city paychecks toward the pension funds. DeStefano recommended increasing those amounts.
Other proposals include increasing the age and years of service qualifications and reducing the maximum benefit.
“Transparent” Talks
DeStefano can’t make any of these changes on his own: He needs to win approval either from arbitrators that are now handling 13 city union negotiations after talks stalled. Though the contracts have been sent to binding arbitration, both sides can choose to sit down at any point and try to negotiate.
His manner of discussing the pension reforms—out in the lofty atrium of City Hall—didn’t sit well with union representatives who crashed the press event.
When the mayor took questions from the audience, Richard Gudis (pictured), a staff attorney from AFSCME Council 15, spoke up. Council 15 represents Local 530, which has about 450 city cops.
“Quite possibly, we’d like to be partners on this, but we haven’t been given the opportunity,” Gudis told the mayor. “I’m just wondering why this hasn’t been presented to us privately.”
“Fair comment,” DeStefano responded. He replied that there are other people affected by the issue — including people who pay taxes and who receive city services.
“I think it’s going to be important going forward that we do this in as transparent fashion as possible with as many facts as possible.” DeStefano said while the city typically keeps bargaining issues private, “this isn’t going to be a typical time. … There’s going to be, not that you don’t know this, a lot of hard choices to make.”
“We’re all aware what the problem is,” Gudis later responded. “But I don’t appreciate starting off bargaining” in the open in City Hall, when negotiations are meant to be private.
“The reality is you can’t negotiate transparently,” Gudis said. “What goes on behind the scenes should stay behind the scenes.”
Police union President Lou Cavaliere said it was too soon to comment on the mayor’s specific proposals when he had just been handed the material.
AFSCME Council 4 spokesman Larry Dorman took aim at the mayor for chipping away at workers’ benefits. Council 4 represents 1,500 city and Board of Ed employees in five unions.
“Trying to roll back retirement benefits is an erosion of the middle class,” Dorman said. He said the union has asked the mayor “to sit down and come up with ways to work together to identify savings” that don’t cut into worker benefits. For example, he suggested New Haven join a state prescription plan, as Hartford has done.