If Cincinnati finally solves its thorniest financial problem – its employee pension fund – it will be because of the collision of a good idea, willing “adversaries” and deadline pressure.
Mayor John Cranley on Tuesday proposed asking the federal courts to oversee a consent decree to stabilize employees’ retirement and health benefits without putting the city at financial risk. The city manager would be authorized to enter binding negotiations with current employees and retirees that would result in reduced benefits but also a mandated city contribution.
Council’s budget committee holds a public hearing at 1 p.m. Monday, but a majority of members already said they support the proposal. Council could approve it Wednesday.
Cranley received immediate kudos for hatching the idea of moving the issue to a court setting where all parties would be at the table.
“I think it’s terrific,” Chief U.S. District Judge Susan Dlott said.
Federal judges, who have lifetime appointments, are uniquely immune to political pressure, said Dlott, who oversaw creation of the city’s much-praised police collaborative after the 2001 riots. “It’s the perfect place to do those kinds of negotiations,” she said.
Government pension problems are rampant across the U.S. as states and cities have struggled to put enough money into their plans to meet their obligations. A number of plans are being renegotiated in the courts as part of bankruptcies or lawsuits, but those procedures aren’t voluntary.
“This is a unique solution as far as I can tell, and if it works out for Cincinnati it is something other cities might look at,” said Elizabeth Kellar, CEO of the Center for State and Local Government Excellence.
The fact that retirees, unions and current employees seem willing to come to the table is key, she said.
The major unions and active employees are already involved in cases before U.S. District Judge Michael Barrett, and a retiree group asked to join Monday. An earlier court ruling allowing the city to cut health benefits gives them reason to negotiate rather than risk another legal loss.
Not everyone thinks federal mediation is the solution. The conservative Buckeye Institute favors moving from a defined-benefit pension plan to a defined-contribution plan.
“You’re going to go through a whole bunch of pain and agony and at the end maybe only buy yourself a few years,” the institute’s Greg Lawson said. “It’s just a Band-Aid.”
The American Federation of State, County and Municipal Employees, which includes more than 1,800 of the city’s 5,500 employees, hasn’t committed to the process yet. However, other employee and retiree representatives have embraced the proposal.
“Having that level of engagement bodes well for a reasonably good outcome,” Kellar said.
Without that level of engagement? You get Detroit, she said. Detroit is in the midst of the largest municipal bankruptcy in history, driven in part by its pension shortfall.
Council must still relinquish some power and let the city manager commit the city to a 20- to 30-year deal. A more conservative council was elected in November, with Democrats Roxanne Qualls, Laure Quinlivan and Pam Thomas replaced by Republican Amy Murray, Charterite Kevin Flynn and Democrat David Mann.
Also, council members are feeling increasing pressure from outside to get the city’s financial house in order. State Auditor David Yost is threatening to put the city under a fiscal caution, which would be a black eye.
A day after the council vote, credit agencies Moody’s and Standard & Poor’s will be here to meet with city officials. Moody’s downgraded the city rating last year; another downgrade is almost inevitable, Cranley said. Lower credit ratings increase the city’s cost to borrow money.
Against that backdrop, at least six council members have indicated support for Cranley’s pension fix. “It’s an elegant solution,” Mann said.
Cranley’s pension plan
Mayor John Cranley’s plan to stabilize Cincinnati’s financially troubled pension system would authorize the city manager to negotiate a long-term, binding settlement with city workers and retirees with these possible features:
- A cap of up to 3 percent on increases to existing cost-of-living adjustments. In addition, all COLAs would be calculated off a base rate and not “compounded,” or recalculated every year, as is the case with current retirees.
- A freeze on cost-of-living adjustments for up to five years for current and future retirees.
- Up to $100 million moved from fully funded health care plan to underfunded pension, requiring cuts in health care benefits for current and future retirees.
- A city commitment to an annual contribution rate.