Today The Daily Astorian begins a two-part series on the impacts of pension costs for governments and schools.
When the cost of the Public Employees Retirement System goes up by 23 percent in the city of Astoria in June, Finance Director Mark Carlson and City Manager Paul Benoit anticipate a $210,000 hit.
“That’s (the cost of) two policemen,” Benoit said, putting the increase into perspective. He added that the challenge the city has is, “What’s happening to our health insurance costs, what’s happening to PERS, is out of our control. So we have to find a way to absorb that. Last year, the city of Astoria’s budget was balanced by a minor draw down in reserves. This year, we’re probably not going to be able to do that. My guess is we’re probably going to have to make some pretty significant choices.”
Across the state, agencies are seeing hikes in the retirement system so high, many will be forced to make cuts and layoffs just to cover the increases. Benoit said it is not yet known what those “significant choices” could be, but may include not filling vacant positions, cuts in spending or the possibility of letting some employees go.
“We’ve been doing things all along the way this year, recognizing that things will get harder before they get better,” Benoit said, noting the city did not replace the Public Works mechanic this year, and contracted with a human resources company, Xenium, rather than replacing the retired director, saving the city $70,000 alone. “What we’re trying to do, to the extent of the opportunities as they present themselves, is not be in a position where suddenly the sky is falling.”
The upcoming increases, individualized through an analysis for each agency, will be for a two-year period. Further increases are feared after that.
In October, the city of Astoria received word of what their increases would be from June 2013 until June 2015.
“For the roughly $900,000 we paid in retirement benefits last year, it’s going to go up about $210,000 just because of this rate change,” Carlson said.
Astoria has used the PERS system since 1990s.
“The city of Astoria wasn’t always a PERS city,” Benoit said. “We used the standard retirement system. But sometime in the early 90s, there was an analysis done and a decision was made by the City Council to give the employees the option to go over to PERS. And the majority of employees did. Some didn’t. There was kind of a one-time-election at that point. And then every employee hired after that was a PERS employee.”
“I think we have five employees that are still in the standard (retirement),” Carlson added. “That of course is our lowest rate.”
There are 48 employees in Tier 1 and 2. There are 44 additional employees enrolled in Oregon Public Service Retirement Plan (OPSRP), some public safety employees, others general employees.
Each employee contributes about 6 percent of their gross salary to the PERS system. The city also makes a contribution. That contribution is defined by an analysis that is made for a two-year period. This year, the analysis for the city of Astoria went up by 23 percent.
That analysis looks at how many employees, what age groups and what tier they fall under – like OPSRP – making adjustments where necessary.
“You don’t have any choices anymore,” Benoit said. “When you come to work for a public agency under PERS, you are automatically put into OPSRP. And that’s different. It’s less expensive to to the taxpayer than the old program. So slowly, these Tier 1 and Tier 2 are going to start fading off the scene.”
The rate increase, Benoit and Carlson commented, is likely a result of the market and the need to fund the current employees that are going to retire someday, as well as those who have already retired.
“But generally, I’d say the benefits are declining,” Benoit said. “The OPSRP retirees will not have the same retirement benefit that the Tier 1 employees did. So the legislature has been making changes to the PERS system to try to make it more feasible, more manageable, something they can fund.”
In the meantime, Carlson said, it all comes down to planning in order to cope with the increase at the city level.
“If we don’t plan for it, it would be the worst possible thing we could do – to bury our heads in the sand and just hope that it gets better and somebody will rescue us,” Carlson said. “I think we see that in a lot of major cities in the United States. They are waiting to be rescued and nobody is rescuing them. Detroit is saying that they just may as well file bankruptcy. That’s just inconceivable 10 years ago. We don’t want to be that city. We are wanting to be planning, projecting, doing everything we can.
“If we can save $10,000 this year, that’s $10,000 we save every single year and the multiplier effect is what will save us. We’ll continue to find every way we can to be more efficient.”
In April, the Budget Committee will meet to start planning for the 2013-14 fiscal year.
Benoit said he is unsure how exactly the increases will affect the city and where that $210,000 will come from. The city, Carlson said, will do whatever it can to make sure service isn’t affected or a department is not debilitated from doing its job.
This story originally appeared in Daily Astorian.