Budget tug of war means pension cuts

In Pensacola, officials felt they were being crushed under the burden of their pension plan, Hayward says. “The city’s annual pension cost increased five-fold from 2003, from $3 million a year to $16 million a year,” he says. “It was unsustainable.”

Though the police union had supported him in his 2010 campaign, Hayward said he knew that the city would have to reform both the general and police plans, if it was going to contain costs. He said the police plan had costly features that boosted payouts at higher rates for longer periods.

The mayor formed a pension reform task force that produced an agreement in 2012 with general employees in June and with police in December. Through negotiations, the city trimmed some of the most costly features in the police plan, like overly generous COLAs, but kept open the pension plan for current police officers. However, all new hires will now be added to the Florida state retirement system, which will significantly trim the city’s expenses.

As a result, the city was able to reduce the percentage of payroll cost to support pensions from 72 cents for every dollar of payroll to less than 15 cents on every dollar of payroll to support benefits for all new hires who will be enrolled in the state system. A tentative deal has been negotiated with firefighters, which would bring additional savings. Hayward also noted that the agreement allows the city to shift some of the savings to pay for raises for its workers, ending some distortions that had arisen as money that normally went to pay increases was devoted to pension plan improvements.

Hayward says the city needs to change the culture that allowed pension benefits to soar at the expense of paving roads and taking care of parks. “Younger employees understand that public sector jobs are different from the private sector,” he says. “We have to adopt some of the practices of the private sector. Employees have to put some skin in the game.”

While Hayward says Pensacola has not had difficulty recruiting new employees as a result of the pension changes, Kellar from SLGE foresees possible problems as job markets improve and older local and state government employees retire.

“We’re already seeing a lot of challenges in recruitment,” she says. “We expect that there will be wage pressures on local government, increased salaries to get people in the door.”

She is particularly concerned about certain positions, where local and state governments compete with private industry, such as technology and those requiring advanced degrees. “We need to keep a workforce in the pipeline in high-skill jobs,” she says. “We need to take care of it.”

Robert Barkin is a Bethesda, Md.-based freelance writer.