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Pension problems back for discussion

W.Va. Legislature
Feb. 07, 2009 @ 10:57 PM

HUNTINGTON -- After falling short last year, there will be another push for legislation aimed at helping West Virginia cities stabilize their drastically underfunded police and fire pensions.

Some of the concerns that led to the bill's demise last year, however, might not make it any easier for this year's version.

State lawmakers, city officials and municipal police and fire representatives have been working on a solution for almost three years. Their task: Find a way to shore up underfunded pension plans that are handcuffing city budgets across the state, including Huntington's.

According to an actuarial report conducted for the state Treasurer's Office last year, the total unfunded liability for 53 municipal police and fire pension programs in the state totaled $659 million. The total unfunded liability is the amount that municipalities would have to pay out to all of its employees if they claimed their benefits at the same time.

While the chances of that happening are slim, the unfunded amount continues to grow. The rapid pace has forced cities to consider tax increases or spending cuts to meet their pension obligations.

Huntington's pensions are in the worst shape of all. As of July 1, 2007, the city's firefighters' pension had assets to cover only 4 percent of its potential claims, while the police pension was 11 percent funded, according to the actuarial report. Statewide, the funding ratio is at about 22 percent.

Many blame the problem on a decision by the Legislature in 1991 to switch municipal pensions from a "standard" to "alternative" funding method. Under a standard method, a city's annual contribution is set according to a long-term amortization schedule projected by an actuary.

Under the alternative method, a city is only required to contribute 107 percent of the previous year's contribution, while employees throw in 7 percent of their pay.

While the alternative funding method reduced the minimum pension contributions for cities that chose to use it, it also caused their unfunded liabilities to grow. Now, several cities are faced with years of soaring costs and no revenue source to pay for it.

Huntington spent about $1.3 million, or 6 percent, of its budget on pensions in 1993. This year, the city will spend $8.2 million, or 21 percent of its budget, on pensions. The city's annual contribution is scheduled to increase every year until 2018, when it reaches $16.1 million.

The city's revenues have been stagnant for many years, so as the pension payments grow, it is left with less and less each year to pay for municipal services.

"Huntington essentially has a balloon mortgage that is entering the years of high payments," said Carl Eastham, a Huntington firefighter and secretary/treasurer for the West Virginia Professional Firefighters Association. "If left alone, Huntington's pension plans would come back and do what they're supposed to do. But can the city handle the rising payments in its budget? Everyone who has looked at this thing says it's not experiencing the growth to sustain this funding method."

Last year's bill proposed to go back to the standard funding method and reamortize the pensions over a 40-year period. Other reforms included creating an oversight board to review investment performance as well as how individual pension boards grant disability and retirement benefits.

For the reamortization to work, the pension plans would need $10 million to $15 million, said Sen. Dan Foster, D-Kanawha and chairman of the Senate Pensions Committee. Last year's legislation proposed raising a surcharge on homeowners' insurance policies to come up with the money.

The bill passed the Senate, but stalled in the House two days before the end of the session.

Delegates from rural areas didn't want their constituents to pay the surcharge to bail out cities. Volunteer fire departments also wanted a chunk of the money to help stabilize staffing.

The investment performance of the plans also remains a concern. Foster said Gov. Joe Manchin would prefer to see investment oversight fall under state control. The governor, however, is not in favor of the state taking over the unfunded liability, Manchin spokesman Matt Turner said.

With years of experience dealing with teacher, police and judicial pensions, the state "can share those lessons learned with cities to assist them," Turner said. "However, it would be irresponsible for us to say that the state is prepared to take on municipal pension debt."

Foster said details on a bill that will be introduced during this year's session, which convenes Wednesday, are still being hammered out. The bill could be somewhat similar to last year's, with the main difference being that cities would share in the funding responsibility with the state.

"I just don't see how the cities could afford to come up with an additional $10 million to $15 million on their own," he said. "It might be more comfortable politically for the Legislature if it's a joint effort."

Sen. Bob Plymale, D-Wayne, said there also has been talk of a drastically different plan than last year's bill. It would involve rolling municipal police pension plans into the statewide plan for deputy sheriffs. What to do with firefighter pension plans has yet to be decided, he said.

"I don't think we're as far along as some might want to think," Plymale said. "I haven't seen a consensus on a true route that we are going to take."

Plymale added that the state is partly responsible for the pension problem and should help cities get out of it. At the same time, cities have done little to help themselves, he said.

"At no time have the municipalities come to the Legislature to tell us how much they need and how they intend to pay it off," he said.

Huntington Mayor Kim Wolfe made the pension issue his top priority when he took office Jan. 1 and has said he will put contract negotiations with the city's employee unions on hold until a solution is reached.

"I think we're starting to get away from the characterization of this bill as a Band-Aid or a bailout, because that's not what it is," he said. "What affects the larger cities affects the whole state."


This is the first in a series of articles looking at some of the issues likely to be tackled in this year's West Virginia legislative session.

Today: Cities' pension issues remain a point of contention.

Monday: Health care is on several lawmakers' agenda, but action to fix the state's health problems won't come easily.

Tuesday: Upgrading state's child-care offerings is among likely goals for the legislature.



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