Pensions put Toledo area budgets under strain

1/4/2010

Second of two parts

The cost of paying for the pensions of public employees locally has risen to be one of the biggest challenges for public officials facing ever-shrinking tax revenues.

Together, government units and school districts in Lucas County spent $168 million in 2008 to satisfy their pension obligations to their employees.

That's an increase of 15 percent from four years ago, when pension costs were $145.2 million.

And those costs could continue to go up as state pension boards look for ways to overcome losses suffered in the stock market declines of 2008.

If the increase in pension costs from 2007 to 2008 is maintained, by 2013 local public pension costs are on track to rise more than 18 percent, to nearly $200 million for Lucas County governments and educational institutions.

The institutions with the largest pension liability are the University of Toledo, including its Health Science Campus (the former Medical College of Ohio), Toledo Public Schools, the city of Toledo, and Lucas County.

Together those entities contributed $117.3 million to state pension systems in 2008, a total increase of more than $13 million from four years earlier.

The University of Toledo had pension obligations in 2008 of $38.5 million, most of which was paid largely into the State Teachers Retirement System on behalf of professors, instructors, and administrators, and millions more into the School Employees Retirement System for support staff who keep the campus running.

While taxpayers foot the bill for most of the pension contributions of local government workers, a substantial source of revenue to pay pension contributions for UT employees comes from the tuition and fees paid by students and their parents, although that's not necessarily the case for all UT employees.

UT has a $750 million annual budget, of which $130 million typically comes from the state. When state cutbacks occur, that forces the university to look at other options, including spending cuts and tuition increases, said Scott L. Scarborough, UT's chief financial officer.

Lucas County sent $23.8 million in pension contributions in 2008 to the Ohio Public Employees Retirement System for its employees and elected county officials. That was up only slightly from $23.2 million in 2004.

Mike Beazley, Lucas County administrator, said the county in the last several years reduced its work force, which slowed the growth of its pension obligations. Total county employment was 3,797 in 2002, a larger work force than the projected figure of 3,328 in 2010.

"The county has reduced its number of employees and because of that the pension portion has fallen as well. It grew for years, but in the last few years we've brought it down," Mr. Beazley said.

Toledo's 2008 pension obligation was $26.6 million, up from $25 million four years earlier.

An exception from the rising cost of pensions is Toledo Public Schools.

Among Lucas County public school districts, only TPS' pension costs declined over the four-year period, from $30.1 million in 2004, dropping to $28.3 million in 2008.

Toledo Superintendent John Foley said the decrease can generally be attributed to the school district's work force reduction.

"With fewer employees, we're paying less in pension costs," he said.

However, the cost in Lucas County of all State Teachers Retirement System and School Employees Retirement System contributions - including 25 new charter schools - has increased.

In 2004, schools in the county paid $58.7 million for employee pensions. In 2008, they paid $63.5 million, up about 8 percent.

Of the traditional school districts, significant increases were recorded by the Ottawa Hills and Sylvania school districts.

Ottawa Hills Superintendent Cathleen Heidelberg said such increases are usually "a reflection of the experience level of our staff."

Affluent districts such as Ottawa Hills and Sylvania are often in a better position to hire experienced teachers, many of whom are retained and go on to receive advanced degrees and higher salaries. That drives up pension costs, Ms. Heidelberg said.

The Ohio Police & Fire Pension Fund and the State Teachers Retirement System have proposed increasing the employer, or taxpayer, share of the cost.

The Ohio Public Employees Retirement System has raised its contribution levels in the past but is not proposing an increase on the backs of taxpayers.

The Public Employees Retirement System board in June provided the Ohio General Assembly with suggestions for lowering the system's costs, but in ways that would shift the additional burden to workers. The contribution levels would stay the same, at 10 percent for workers and 14 percent for employers. But the age of retirement eligibility would be raised by two years and benefits would be based on the average of the five highest years of contributions, rather than the current three, to name just two proposed changes.

The Ohio Police & Fire Pension Fund is recommending an increase in the employer's share for police, from the current 19.5 percent to 24 percent, to be the same as firefighter employers' costs. The employees' share, now 10 percent for both police and fire, would rise to 12 percent.

Toledo now pays its employees' pension contributions for its police and fire forces. Terms of a concessionary contract adopted in 2009 call for new police officers and firefighters to pay for their own employee contributions.

The State Teachers Retirement System has proposed raising the employees' share from 10 percent to 12.5 percent and the employers' share from 14 percent to 16.5 percent.

Lucas County Probate Judge Jack Puffenberger said the public employee pension system is one of the incentives to work in public service. He said public employees are restricted in how they can make supplemental income, and even in the perks that are available to those in the private sector.

"As judges, we're not permitted to perform any other work. I'm not allowed to go out and practice my profession. We're very limited in what we can do," Judge Puffenberger said.

"Every dime of money in the retirement systems belongs to the people that earned it. Any time any employee works for an employer you're entitled to the compensation you've earned," the judge said.

Judge Puffenberger is one of several local elected and appointed officials commonly called "double-dippers" because they are receiving a public pension and drawing a public salary at the same time.

In August, 2002, Judge Puffenberger filed a notice with the county board of elections to comply with state law that he disclose his intention to draw his state pension 90 days before seeking re-election.

Luckily for Judge Puffenberger, he was unopposed in the November, 2002, election. He notified the local election board that he would retire on Jan. 31, 2003, for the purpose of collecting his public pension, and would begin his new term on Feb. 9, 2003.

At the time he was paid $106,200 a year as a judge, and he estimated his annual pension at about $70,000. He now is paid an annual salary of $121,350.

In Toledo, the taxpayers' pension burden is expanded because of previous city labor contracts that shifted millions of dollars of pension payments from city workers to city taxpayers.

Taxpayers pick up the full 10 percent employee share for members of American Federation of State, County, and Municipal Employees Local 7, and all police officers, firefighters, and police and fire command officers.

Members of AFSCME Local 2058 and Teamsters Local 20, exempt employees, and Municipal Court employees get most of their share paid. Executive-exempt workers, such as directors and commissioners, get half of the employee share picked up. Only elected officials pay their full employee share.

The projected cost to Toledo taxpayers of the pension "pickup," as it is known, was projected at $13.9 million for 2009. That's in addition to the $26.3 million the city was to pay for the employer's share of their pension.

City officials are eyeing the pension pickup in contract negotiations as the city struggles to make ends meet on its 2.25 percent payroll tax. The city faces a deficit estimated at up to $40 million this year - about the amount it pays for employee pensions.

Toledo's pickup of employee pension contributions began in the 1990s.

Police and fire employees got the last chunk of their employee share - 3.75 percent of - picked up in 2006, the first year of Mayor Carty Finkbeiner's term to which he was elected in 2005 with the help of police and fire employee unions. That term ends today when Mike Bell - a former firefighter and fire chief - is sworn in as Toledo's mayor.

Under budget pressure, Mr. Finkbeiner attempted in last year's labor negotiations to have police and fire unions agree to have their members pay their employee pension share, but the unions only agreed to have their members pay 7 percentage points of their pension share for the last six months of 2009. In return, they got six and a half additional vacation days to use in 2009.

On Jan. 1, the city resumed picking up the total cost of the employee pension contributions for police officers and firefighters. The unions agreed that new hires would pay the entire employees' share of 10 percent.

Whether the incoming administration of Mr. Bell will try to shift the cost of employee pension contributions back to the current employees is not known.

"If there was going to be any movement on it they would have to open our contract," Dan Wagner, president of the Toledo Police Patrolman's Association union, said. "I don't think our members would approve opening it back up."

He said the concessionary contract of 2009 passed with a margin of 5 or 10 percentage points.

City Councilman George Sarantou, longtime chairman of City Council's finance and budget committee, said the cost of investing in employee pensions is a significant one for the city.

"In the 1990s pensions were increased in lieu of cost of living [raises]. Labor agreements were hammered out increasing pension costs," he said. "Twenty years ago many state and municipal workers were not paid as well as in the private sector. Part of this was a catch-up mentality."

But the tide is turning.

With private sector employee and retiree pensions facing setbacks, cutbacks, or outright depletion because of bankruptcies and the severe recession, some are wondering whether public sector pensions can be maintained at the same levels.

"Pensions are on the radar screen because the cost has increased so much," Mr. Sarantou said. "If things do not improve either we reduce our costs in benefits or we lay off more people."

Staff writer Tom Henry contributed to this report.

Contact Tom Troy at:

tomtroy@theblade.com

or 419-724-6058.