Retirement System A Drain On City Budget

In the last 15 years, the city’s payment toward the state’s retirement system for police and fire officers and its employees has increased more than $3.5 million.

The city budget pays toward two retirement systems – one for police and fire and the other for all other city employees in the 2014 spending plan. The police and fire is also known as the PDF and the employees is also called ERS.

In 1999, the city paid $11,307 toward the state’s police and fire retirement system. In 2013, the city’s obligation was $2,366,903 toward PDF retirees. In 1999, the city paid the state $56,673 for the employees retirement system. In 2013, the city’s obligation was $1,268,662 for ERS retirees.

Paying $3,567,585 more for these two state retirement system obligations has taken a toll on the city’s budget.

So much so, for the first time since 2005, city officials are proposing not to make a full payment toward the retirement system in the 2014 spending plan.

Jamestown Mayor Sam Teresi said the state offers two amortization plans for municipalities who cannot make a full payment toward the retirement system. In his executive budget, Teresi has proposed paying $2,158,000 toward police and fire and $1,021,000 toward the employee retirement system. The full payment for PDF would be an estimated $2.5 million. The full amount for ERS would be $1.2 million.

As of now, or even after the 2014 budget is enacted, city officials don’t have to decide on what retirement system obligation to select. City officials won’t have to choose until Dec. 15, 2014, because the money budgeted in next year’s spending plan is for its 2015 retirement system payment. Because of this delay in when the city government has to make its retirement system obligation to the state, Teresi is remaining hopeful there will be extra money remaining in the city budget or additional revenues to make a larger payment.

“The amount allocated in the budget should be sufficient, more than sufficient, to pay either of the amortization programs. We’re hoping as the year goes on not to amortize. Our goal is to pay the full bill. However, that won’t be determined until next fall,” Teresi said. “We may make a full payment for one or even both of them at that time, or we will choose which amortization option to go with. Our goal is to not amortize, but that doesn’t appear likely at this time.”

Joe Bellitto, city comptroller, said the only difference in the two amortization programs is how long the city has to pay it back and how much it still owes. He said in 2005, the last time the city amortized a retirement payment, it was for police and fire. He said things have changed since then as far as payments. For the last 10 years the city has been set to a payment plan to pay what it still owes. However, he said the state has since loosened its regulations.

“In the new program, if you have extra money you can make additional payments to pay it down quicker,” he said.

WHAT CAUSED

RETIREMENT SYSTEM

PAYMENT INCREASE

Two different stock market crashes are the main reasons the state’s retirement system obligation has increased dramatically in the last 15 years, Teresi said. The first spike in the payment came in the 2004 budget. The city went from paying less than 5 percent for the retirement systems to funding more than 12 percent for both. The mayor said this increase came after the stock market crashed after the Sept. 11, 2001, terror attacks. The second jump in the payments started in the 2010 budget after the 2008 stock market crash. Since the 2010 fiscal plan, the city’s obligation toward the retirement system has continued to climb several percentage points each year.

Teresi said the retirement system gets funding through three revenues – employee contributions, employer contributions and interest and dividends off investments.

“The state retirement system is heavily invested in the stock market. So when it crashes, the retirement system loses a lot of its value,” he said. “The state comptroller then had to take corrective action. Under the state’s Constitution, the retirement system has to be kept fully funded.”

Teresi said the state has taken measures to prevent such large payment increases toward the retirement fund for municipalities. He said extra tiers were added to the system and employees have to pay more out of their own pocket toward the fund. Also, because the rate municipalities have to pay is based on a five-year average, the mayor said the increases should be stopping because it has been five years since the last stock market crash affected the retirement fund.

“Hopefully, with the economy recovering and the stock market doing better, the retirement system has been built back up,” he said. “We hope we are moving to a leveling-out period or a reduction for some relief.”