By The CR Gazette Editorial Board –
The future of Iowa’s Municipal Fire and Police Retirement System is being shaped by a debate over how best to balance tightening city budgets and rising pension costs with our commitment to take care of public servants who do vital, high-risk jobs in our communities.
And because the issue must ultimately be decided at the Statehouse, it’s wrapped up in tough politics.
Gov. Terry Branstad recently floated the idea that police and firefighters should contribute more of their pay to help shore up the system. “When the fund is not adequate, the increase is put 100 percent on the municipality. And that’s something that I think needs to be addressed,” Branstad told journalists with IowaWatch.
But a key state senator sharply panned the governor’s approach.
“I would argue that our own governor double-dip has zero credibility on pension reform,” said state Sen. Jeff Danielson, D-Cedar Falls, a firefighter and chairman of the Senate committee that likely would handle pension changes. “Double-dip” refers to the fact, much-derided by the governor’s critics, that Branstad is drawing both his salary and a state pension from his previous time as governor.
Major cost for cities
Behind the overheated partisanship is a growing expense for cash-strapped cities.
The numbers show a police and fire pension system that is relying more and more on a commitment from the 49 Iowa communities that take part in the program. In Cedar Rapids, for example, the city’s share of the pension program is more than $6 million, up from about $3.6 million three years ago. Cedar Rapids covers part of its cost by using dollars collected in fines from traffic enforcement camera tickets.
“It’s obviously a significant cost to the city. And cities have been talking about this, so we do appreciate the governor discussing the issue,” said Cedar Rapids City Manager Jeff Pomeranz. “But I think, to be fair, there needs to be a solution that involves multiple parties. It’s not about the employees or the city or the state. It’s about all three parties working together to find a solution.”
The basic problem
The basic problem for cities is that, among the pension system’s four sources of funding, only the share paid by municipalities is growing to keep up with the increasing cost of benefits. Fire and police employees can retire at age 55 and draw an annual maximum benefit of 66 percent of their final wage for those with 22 years of service, and also receive annual cost-of-living increases.
Employee contributions to that system are locked in at 9.4 percent of wages by state law. It would take an act of the Legislature and governor to change the percentage.
Investments made by the $1.8 billion pension fund are still recovering from the economic downturn. The system is looking for ways to diversify its portfolio with hopes of achieving a 7.5 percent rate of return. But that goal could be difficult to achieve as the economy continues to sputter.
The law also directs the state to contribute to the system. But during the current fiscal year, the state share dwindled to zero, down from $1.5 million in 2011. And since the system was created in the 1990s, the state has underfunded its commitment by $20 million, Danielson said.
So it falls to cities, which are required by law to contribute at least a share equal to 17 percent of employees’ pay to the system, but with no ceiling on growth. The cities’ stake now stands at just more than 26 percent of wages, a share that the Iowa League of Cities estimates will soon top 30 percent.
The employer/employee split of the entire system’s annual cost this year is roughly 70/30.
But backers of the current structure contend it’s still a good, efficient system that’s doing its job for public servants who do difficult jobs for Iowa communities.
“We’re hardworking middle class people,” said Rick Scofield, a retired Cedar Rapids firefighter and president of the Iowa Professional Firefighters. “And we’re trying to do a job, we’re doing a very important job of protecting communities. And we risk our lives on a daily basis to do that.”
60/40 proposal
Branstad told
IowaWatch that he favors revamping the system so that the employer/employee funding ratio is 60/40, much like the Iowa Public Employee Retirement System, or IPERS, that covers other public employees. The League of Cities supports the same ratio. Addressing the pension problem for cities also may make it easier for Branstad to sell his push for commercial property tax reform to skeptical local governments.
“I think the local government pension system is something we have to take up. I don’t know if the immediacy is next session, but it has to be in the next couple of years, or local governments are going to get buried,” said Iowa House Speaker Kraig Paulsen, R-Hiawatha. But he’s uncertain whether 60/40 is the best approach.
“I don’t know if that’s the right solution, or whether that’s part of the right solution, or whether there’s something better,” Paulsen said.
Different from IPERS
Danielson contends that the police and fire system is much different from IPERS, providing not only retirement benefits but also disability payments, workers’ compensation and health coverage to employees who began their careers before a law change made police and fire pensioners eligible for Medicare. Some of those benefits, he contends, save cities money, along with the fact that participating employees aren’t eligible for Social Security, saving the city’s contribution.
“When you add all that up, you get probably one of the most efficient income security programs in the country,” Danielson said. He argues that the state should live up to its promise and provide additional funding to the system, especially with a sizable budget surplus in the bank. He backed a failed legislative effort to boost the state’s annual contribution to $5 million.
If the state chips in more, Danielson said, public employees may be willing to talk about a larger employee contribution. He argues that any plans to change the system should be first vetted by the board that oversees the system, which includes both city officials and public safety workers, before being submitted to the Legislature for debate.
“Police and fire are not opposed to looking at a partnership going forward that makes it more sustainable,” Danielson said. “We want it to be safe secure and sound.”
If state leaders can set aside harsh politics, the ingredients for compromise will emerge.
Balanced strategy
Pomeranz is correct that balance is needed. It’s unfair to expect cities to take on the entire burden of rising costs. Solving that issue will take both a renewed commitment by state government to help pay for the system, as Danielson advocates, and a willingness by employees to contribute more of their pay, as Branstad contends. The details should first be worked out by the system’s board, which has the closest, most-balanced view of its needs.
We believe the growing burden on cities is a pressing issue that needs to be addressed, but we don’t believe drastic changes to the system are needed at this point. The system’s benefits are generous, but so are the contributions of firefighters and police to the communities they serve.
“We all have a lot of respect for the role of our firefighters and police officers. So no one wants to take benefits away. So what’s needed is a comprehensive study of the system,” Pomeranz said, arguing that such a review could uncover other sources of savings.
We agree.
