Balancing a budget is always a demanding process, but especially so with today’s strains on public funds. A growing dilemma among municipalities today involves public pension plans. What was promised to current and former city employees as a guaranteed payment is in many places threatened by current budget crises. Central Falls, R.I. is currently facing the very possible reality of having to file for bankruptcy. This dire situation was brought on by a number of issues, including underfunded pension plans for local law enforcement and the inability of the state to offer much assistance. To mitigate the fallout, the town has had to shut down many key facilities including their public library. The State Appointed Receiver has begun asking retired police officer and firefighters to accept reduced pension packages. If things do not change, the fund is expected to be depleted by October.
Smaller towns like Central Falls are not the only ones facing pension and benefit funding issues. In Florida, Maine, and New York the problem has become so widespread that it has created a heated debate at the state level.
Municipalities have begun to make major changes to the system, including sometimes eliminating benefits for employees altogether. In St. Charles, Mo., Charlotte, N.C., and Mecklenberg County, N.C. all new employees will not be eligible for healthcare upon retiring in an effort to pay for past employees. No surprise, public employees have not simply accepted such measures. In New Hampshire a lawsuit is blocking the passage of a reformed retirement system. The plan looks to re-certify and change the rates employers pay for the pension fund. This fund supports more than 50,000 active state employees including municipal workers, police officers and firefighters. These groups are filing suit, contesting the constitutionality of whether pension rates can be changed after the fact. Increasingly, states and local governments are left with no easy solution that satisfies both members of pension plans and bondholders. There may be hope yet for some pension programs like in Fairfield, Conn. In spite of a tight economic year they have actually exceeded their expected pension funds.
The Center for State and Local Government Excellence, a non-partisan, non-profit organization that is affiliated with ICMA, has been leading the discussion of public pensions and their effects on municipal finances. The organization has pointed out that the pension situation for the vast majority of municipalities is much more stable than the picture often found in the media. Many of its reports and issue briefs can be found on the Knowledge Network:
You can find more great resources by searching “Center for State and Local Government Excellence” in our Documents library, and at www.slge.org. Don’t forget the KN topic pages on Retirement and Personal Finance.