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Posted at 09:38 PM ET, 04/04/2011

Does the D.C. pension system already need to be saved?


(Source: D.C. Office of the Chief Financial Officer; analysis by Cavanaugh Macdonald Consulting LLC)

The District of Columbia has the enviable and fairly unique position among local governments of having its employee retirement obligations completely, utterly, fully funded. Thanks to the Revitalization Act passed by Congress in 1997, the District had its long-underfunded pension system assumed by the federal government, and the city is now prohibited by law from underfunding its obligations.

So why was the D.C. Council debating Monday whether some city employees should absorb potentially stiff cuts to their retirement benefits?

D.C. Council member David A. Catania (I-At Large) says that the District is tiptoeing down a path to insolvency, and his “Pension Protection and Sustainability Amendment Act” aims to fix the problem. Colleague Mary M. Cheh (D-Ward 3)’s government operations committee held a hearing today on the legislation.

Compared to many local government employees in the region, the District’s workforce has comparatively modest benefits. Only police officers, fire fighters and teachers have defined-benefit retirement plans — aka pensions); the rest of the city workforce have defined-contributions plans — aka 457(b) plans, much like a 401(k) plans.

But while the city is in fine shape now, Catania sees trouble on the horizon, and he was dealing in apocalyptic rhetoric Monday, quite literally: “I see another 1997, without another federal bailout, and choices that are going to be apocalyptic,” he said to the teachers, cops and firefighters who lined up to oppose his proposal.

The farther the city travels from the clean-slate year of 1997, the more the District has to pay each year to keep its pension fund solvent. In fiscal 2012, the city is set to pay $116.7 million, per the Office of the Chief Financial Officer; by fiscal 2015, that rises to $211.9 million. For a bit of context, the entire Fire and Emergency Medical Services department cost the city $197.5 million this year.

Catania’s bill has several provisions. Uncontroversially, it would toughen the actuarial requirements to solidify the fiscal fundamentals of the pension system. Slightly controversially, it would exclude an employee’s time spent on unpaid leave from his or her retirement benefit calculation. Most controversially by far, and most impactful on the city’s bottom line, it would place restrictions on the cost-of-living adjustments given to pension-receiving city employees. Currently D.C. pension COLAs are indexed to the consumer price index; Catania proposes to index COLAs to 50 percent of CPI, with a floor of 1 percent and a ceiling of 3 percent -- similar to the rails adopted by the New York state and local employee pensions.

Needless to say, a proposal that stands to seriously limit benefits to the District’s most sympathetic employees came in for some heavy criticism. Both Police Chief Cathy L. Lanier and Acting Fire Chief Kenneth Ellerbe testified against the legislation, in addition to union officials. They made many arguments against the bill — that it would make recruiting tougher, that it was essentially reneging on promises made to generations of employees, that it was a shabby way to treat the city’s most valued workers.

The hearing got combative at times between Catania and the witnesses, some of whom offered parallels to some of the union-busting initiatives seen recently in some state governments across the country. “This is not about trying to out-Scott Walker Scott Walker,” Catania said at one point, in reference to the hard-line Wisconsin governor.

Now a bill targeting union members would seem to have little traction in a town as overwhelmingly Democratic as the District is, but the CFO’s office unveiled a potential trump card: The bill, an CFO representative testified, could generate an immediate savings of $52.6 million for fiscal 2012, with even greater savings in the out-years. That could mean relief from a great deal of the tax hikes or service cuts proposed by Mayor Vincent C. Gray. Do note: Kristopher Baumann, the outspoken police union leader, tells me he doesn’t buy the revenue figure, saying it’s based on the unrealistic assumption that COLAs would also be cut for current retirees, not just future retirees.

But if the number is workable, and considering that a goodly portion of the pension-eligible employee base doesn’t live in the city, it’s worth asking: Will the immediate cash infusion be enough to mute the council’s ears to the union protests?

Here’s what the CFO’s office had to say:

CFO analysis of Catania pension bill

By  |  09:38 PM ET, 04/04/2011

 
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