Melissa Bailey Photo
The city’s pension fund is ticking like a “time bomb.” A new mayor comes in. He calls in the city unions. He calls in the state. Together, they work out a solution that rescues workers’ pensions, saves the city from bankruptcy — and brings in much-needed state PILOT money.
Wishful thinking? Or a creative new solution?
Henry Fernandez, one of four Democrats running for mayor in a Sept. 10 primary, floated that idea Thursday in an appearance at an East Rock supporter’s home.
His remarks came in a week of increasingly bad budget news for the city: Budget chief Joe Clerkin announced that after a surprise $3.5 million deficit in the schools budget, and amid plummeting bond ratings, the city’s “rainy day” fund is set to evaporate for the first time since the early ‘90s.
Fernandez highlighted two problems: The pension fund and disappearing PILOT dollars.
The city’s pension funds, which sit at roughly $400 million, are about 50 percent unfunded, creating a potential hazard for the city if a lot of employees choose to retire. The city’s contribution has been increasing every year, up to $46 million in the fiscal year that started July 1, about three times what the city was paying a decade ago. Fernandez said the two funds — one for police and fire and the other for other city workers — are not performing well. In the past 10 years, he said, only once have the funds met the city’s projection for how much interest they would generate.
He said there are surely other factors creating the city’s financial problems, such as the high cost of debt service. But pensions are particularly worrisome: while “time will resolve debt service,” because the city’s debts are being paid off, time will “make pensions worse.” Over time, more people retire, taking money out of the fund. The city is struggling to keep up with that obligation.
The city’s pension obligations are ticking “like a time bomb,” Fernandez said. “We need to get this problem off of our books.”
The second problem: The state does not fully reimburse the city for its eligible non-taxable land; state PILOT (“payment in lieu of taxes”) reimbursements have fallen far below historic levels.
Fernandez offered a solution to both problems. He said he’d ask the state to fully fund PILOT, with a twist: So that state officials can be sure the money is going to a good purpose, he’d strike a deal that would require the new PILOT money to go towards the city’s pension fund.
In turn, city unions would be motivated by the state’s gesture to re-negotiate pension plans. As a result of a three-way deal, the city’s pension funds would be rescued, restoring the city’s financial position and raising its standing with bond agencies, Fernandez argued.
“If we fix our pension system,” he argued, “then a lot of our most significant financial problems are resolved.”