Two years after the issue ws supposedly defused by Congress, the pension program for many D.C. government workers is still an economic time bomb that could undermine the city's financial health by the end of the century, and now it is ticking a bit louder.
By recently deciding not to cover an extra $23 million in unexpected pension obligations for its teachers, police officers and firefighters this year, the administration of Mayor Marion Barry was bringing its 1981 budget back into balance, but only at the cost of worsening an ominous problem that has defied solution.
With each passing day, the District government builds up more and more obligation to make future pension payments for which there is no source of revenue. This "unfunded pension liability," inherited with home rule, haunts Barry and his aides as they grope for solutions to the city's fiscal crisis, and it has stirred fear and anxiety among retired workers, union leaders and active employes who see a threat to their benefits.
At a recent congressional hearing, Del. Walter E. Fauntroy (D-D.C.) peered down at Barry, who was seated at the witness table in the House District Committee hearing room, and asked about the decision not to add the $23 million to this year's pension budget: "Can you guarantee that this will not result in any new unfunded pension liability?"
Silence. A pause. Then the mayor spoke: "We know our pension plan is in terrible trouble. It should be the next item of priority for this committee." But neither Fauntroy nor any other member of the committee pressed the point and the subject was dropped. And it is not going to go away.
Pension benefits are sure to be a major issue when the District begins collective bargaining with workers' unions for the first time this summer, because the unions want guarantees of retirement security. Barry warned more than 8,000 retired workers in February that their pensions "may be jeopardized" by the city's shortage of money, alarming elderly pensioners who fear a cutoff of payments and active workers who realize that the future benefits they took for granted when they were federal employes may not be secure now that they work for the District.
The mayor has been saying for months that he will have to ask Congress for annual grants of $175 million a year for 29 years -- a total of more than $5 billion -- to stave off a collapse of the pension system in the next century, when many of today's workers will be collecting their benefits.
The District is already laying out $120.4 million a year in pension money -- about one dollar in every 12 in the general fund budget. By the end of the 1990s, the city will be paying more in pension benefits than in salaries to active workers. Under the present financing structure, pension payouts and contributions to the pension trust funds will cost the city $706 million a year by 2005. That expense, pension experts say, would force the city either to break its agreement with the workers by cutting their benefits or to levy such high taxes as to drive residents and businesses out of the District, which in turn would leave the city without enough for its pensioners.
That is the "terrible trouble" to which Barry referred in his remarks to Fauntroy, remarks that were consistent with the strong language the mayor used last summer in his efforts to alert workers, Congress and the public to the growing pension crisis. The $23 million about which Fauntroy asked Barry during a hearing on the city's financial status was only the latest chapter in an increasingly grim drama.
According to Philip M. Dearborn, the mayor's financial counselor, the city's 1981 budget includes the amount of pension funding that the U.S. Treasury's actuary calculated would be necessary: $120.4 million. "A couple of months ago," Dearborn said, "we updated his estimates based on what we know now. We found that if the actuary were making his estimates today, he would make them $23 million higher." The higer costs, he said, resulted from an unexpected number of retirements, an "early-out" retirement program -- which the city government encouraged to pare its payroll -- that increased the number of pensioners while decreasing the number of workers contributing to the pension funds, and the double-digit inflation that pushed the payouts to retired teachers beyond predicted levels.
Rather than throw its budget out of balance by shelling out the extra $23 million, the District government decided to spread that payment out over the next 25 years, a procedure Dearborn said is not only permitted but required by the 1979 law that controls the city's pension program. Since the pension payout includes not only checks to retirees but also contributions to trust funds set up to finance future benefits, the deferral does not mean that any present pensioners will miss checks, but the burden on the future is raised again.
Dearborn said the full amount due would be paid in yearly installments so the overall pension problem would not worsen. But union leaders are skeptical. "This is the first I've heard of it," Teachers' Union President William Simons said. "The fund will suffer, and I can't approve of that." Larry Melton, vice-president of the International Brotherhood of Police Officers chapter which represents the D.C. police, said there was "no way" Barry could be allowed to do anything that jeopardized "guaranteed benefits." He suggested that Barry was "playing politics," deferring obligations to city workers to avoid a tax increase that would hurt his chances for reelection next year.
After a meeting last week of the Retirement Board, the panel created by Congress to manage the city's pension funds, Chairman Frank Higgins met with city officials to suggest that at least some of the $23 million be put into the fund even if the city is not legally required to make the payment. Dearborn said that had "not been ruled out, but I doubt the city is in a position to do more than we have to do."
One immediate effect of spreading the $23-million payment over future years is that it throws the city's budget for the 1982 fiscal year out of balance. Whatever the first year's share of the repayment is will have to be added to the 1982 budget, as well the amount of any additional pension funding actuaries determine is needed because of the continued high inflation.
Before home rule, the pensions of all city workers were paid out of the federal government's operating budget each year. More than half the city's estimated 30,000 workers are still covered by the federal pension program. The pensions of police officers, firefighters, teachers and some judges, however, became the responsibility of the District government, which acquired an obligation to pay the pensions of all those on the payroll but no funds with which to do so. The workers had been accumulating pension rights, but the city had not been accumulating funds to pay them.
Congress has already grappled twice with this issue since the advent of home rule in 1975. In 1978, Congress agreed to provide $1.75 billion in federal pension funding over 25 years, but President Jimmy Carter vetoed the bill. New legislation enacted a year later provides $52 million annually through the year 2004, for a total of $1.3 billion.
That amount was thought to be sufficient to cover obligations of all workers who had accumulated benefits before home rule. But Barry's aides now say it will cover only about 24 percent of those benefits. By 2005, according to Barry's figures, the gap between the revenue generated by the pension trust funds and the amount actually required will be $706 million a year, all of which will have to be financed by District taxpayers unless Congress comes through again.