 It’s been clear for years that Springfield residents have been suffering under
the city’s deepening pension crisis. Two years ago, the city was already
spending nearly every penny of its general fund property taxes on pension costs,
leaving nothing for other core services.
Springfield officials had already shuttered a few library branches and reduced
library personnel by 36 percent, largely due to overwhelming pension costs.
Sworn police officers had been cut by 9 percent. Public works positions were
reduced by 26 percent. Only through higher sales taxes had funding for sidewalk,
sewer and street repairs been restored.
But after little action to tackle the crisis, the city has now has an even
bigger hole. The shortfall in Springfield’s pension funds rose by more than $200
million from 2015 to 2016, according to the ratings firm Moody’s Investors
Service. In response to this skyrocketing pension liability, Moody’s downgraded
the city’s debt by two notches on Oct. 28, to A3 from A1.
Springfield residents will pay for those pension costs through more cuts in
government services, or if some officials get their way, through higher taxes.
Neither of those will help Springfield as residents, over time, will choose to
move right over the city border into smaller, thriving villages that have no
legacy costs and where the schools are upgraded and new.
Bigger taxpayer contributions to the pension funds also haven’t helped local
city workers. The city’s police and fire funds are now closer to bankruptcy than
they were five years ago. The plans’ funded ratios – the amount of money they
have in the fund versus how much they owe – are at critical levels.
The police fund has just 41 cents of every dollar it should have today to meet
its future obligations. The fire fund has just 38 cents. Younger workers should
fear they’ll see their future pension checks cut unless major pension reforms
are passed.
A wake up call for the city came earlier this year when the police and fire
funds released their most recent fiscal results. Those results proved that
defined-benefit pension plans are unmanageable, unpredictable and based on
assumptions that simply can’t be met. Three major failures revealed the plan’s
flaws and why taxpayers are asked continuously to bail them out:
- First, the pension plans failed to meet the assumed investment rates of
return needed to meet their pension promises. In fact, both the police and
fire pensions reported investment losses of nearly 5 percent last year. Over
time, shortfalls in investment returns mean taxpayers have to make up the
difference.
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- Second, other assumptions including how long retirees live
were adjusted. A longer time in retirement for city workers
means even bigger pension payouts during their retirements. And
bigger pension payouts mean taxpayers are on the hook to
contribute even more of their money to the pension funds.
- Third, the plans revised downward the discount rates used to
determine how large their pension obligations are. Lower rates
mean taxpayers will be forced to make up the millions going
forward.
All three failures have led to an $81 million increase in the
amount taxpayers have to put into the city’s police and fire pension
funds going forward. Despite this increase in taxpayer
contributions, there’s little reason for city workers to feel like
they have retirement security – in large part because these
continued failures are a recipe for pushing more of Springfield’s
middle- and working-class residents out of the city.
That outflow of residents has been in motion for years. For proof,
officials need only to look at where its own city workers are
choosing to live.
In 2000, a city ordinance required city workers to live in
Springfield. All city workers complied and lived within city limits.
But 15 years after the expiration of that ordinance, an analysis
found 30 percent of city workers no longer lived in Springfield.
Nearly half of the city’s firefighters lived outside Springfield and
one-third of its police lived elsewhere.
When the city’s workers no longer feel the desire to live in the
city they serve, it’s a sure sign the city’s on a wrong path.
The failure of the pension system is a major contributor to
Springfield’s woes. And everyone loses under the current pension
scheme.
Police and fire workers don’t have a secure retirement. Taxpayers
are paying more toward a broken and bankrupt system. And those
dependent on core government services are getting less.
Springfield city officials should be leaders in advocating for
statewide change in municipal pensions. They should demand the
Statehouse follow the lead of the private sector and many other
states that give workers control over their own retirements. New
municipal workers need self-managed plans, such as 401(k)-style
plans, and existing workers should have the choice to opt in to one.
Springfield city officials are well positioned to take the lead on
pension reform, and they should take this opportunity to set the
example for the rest of the state.
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