SalemNews.com, Salem, MA

October 15, 2013

Report: Pension debt soaring for cities, towns

From Wire and Staff Reports
The Salem News

---- — Sounding a fiscal warning alarm to state officials and municipal leaders alike, the Massachusetts Taxpayers Foundation has cited an update showing that cities, towns and the state remain dangerously underfunded when it comes to public pension and long-term health benefits — and that the situation is growing worse.

In a new bulletin, the business-backed group that monitors state finances reported that state and local governments have set aside only 43 percent of the $146 billion they need to pay benefits already promised to current employees and retirees.

And those state and local governments in Massachusetts face $83 billion in unfunded pension and retiree health care obligations, which indicates that without reforms, the burden of pension and health liabilities will drain resources away from education, public safety and transportation.

The issue has surfaced in recent years on Cape Ann, where a citizens group in Manchester headed by William Shipman won a spring Town Meeting push to set aside an additional $100,000 in the town’s budget this year in the next step toward addressing the town’s long-term unfunded liabilities — pegged at up to $52 million in pension liabilities and post-employment benefit costs for retired town employees.

Shipman said his group arrived at the $42 million figure by adding Manchester’s contribution to the Essex Regional Retirement Board ($9,431,784), other post-employment benefits (OPEB) liabilities ($16.86 million as of 2012), and pension and health care costs on a town level.

The issue of unfunded pension and other benefit liabilities also surfaced in last week’s Cape Ann Chamber of Commerce mayoral debate between Mayor Carolyn Kirk and challenger Mac Bell. And Gloucester’s projected liabilities are expected to increase once the city’s new Fire Department contract kicks in next July 1, boosting firefighters’ regular work week — and thus salaries — from the current 42 hours to 56.

The new contract, designed to change the department’s shift structure and keep open all four of Gloucester’s current free stations, is also projected to cost the city an added $1.6 in annual operating figures. And the longer hours and bigger paychecks would give firefighters more substantial pensions down the line.

“The troubling reality is that unfunded pension liabilities have grown over the past decade, despite the enormous sums that state and municipal governments have contributed to their pension funds,” the Mass. Taxpayers Association bulletin said.

Benefit enhancements, early retirement incentives, and the failure to meet investment benchmarks have contributed to the growing liabilities, the study said, as well as dramatic increases in long-term costs resulting from extensions in liability funding schedules that researchers say have been adopted by “nearly all systems.”

In that vein, the report found, officials have turned to elongated funding schedules over the years to limit spending cuts and tax increases.

The state’s pension system was 88 percent funded in 2000 but only 66 percent funded in 2012, the report said.