New cities might escape DeKalb pension debts

All across DeKalb County, neighborhoods are banding together, pushing to become cities in their own right. They want greater control over local government, more police, better parks.

If residents are successful in forming the towns of LaVista Hills, Tucker, Stonecrest and South DeKalb, they might get an added benefit:

They might wiggle out of having to help pay off part of the county’s giant pension debt. That burden would increasingly fall on residents who are outside city borders.

The pension issue could ripple throughout DeKalb, with fewer people left to pay higher taxes and the county spending more money on retirement benefits instead of services.

DeKalb’s unfunded pension liability is about $666 million — the equivalent of $951 for each of the county’s current 700,000 residents, most of whom live in unincorporated DeKalb.

But the number of non-city residents who bear the brunt of the pension costs has already dwindled by nearly 100,000 people following the recent formation of the cities of Dunwoody and Brookhaven. Creating more cities would likely mean tax hikes in unincorporated areas unless the Georgia Legislature intervenes.

That’s because when cities are created, they typically take over responsibility for police, roads, parks and transportation, meaning tax dollars for those services are no longer distributed to the county. The county uses part of that money to fund its pension.

“All those citizens benefited from the services the county provided in the past, and now they’ve incorporated and don’t have to contribute to that liability,” said Ed Wall, the chairman of DeKalb’s pension board. “I can’t hardly sleep at night worrying about it.”

Cities, meanwhile, usually offer their employees defined contribution retirement plans — similar to a 401(k) — rather than pensions.

Wall fears that a diminishing number of residents will be left with increasing pension costs, jeopardizing the county’s ability to generate tax money for required annual payments.

A proposal by a task force formed by Interim DeKalb CEO Lee May asks Georgia lawmakers to require new cities to continue contributing to the pension debt. The task force recommended the creation of a special tax district made up of the county’s current unincorporated area.

The county’s youngest cities, Dunwoody and Brookhaven, also could be forced to begin payments.

That idea doesn’t sit well with Dunwoody Finance Director Christopher Pike.

“I don’t think any jurisdiction should be responsible for another jurisdiction’s liability,” Pike said. “That would be about as absurd as calling up the city of Denver and asking them to pave our roads. … I don’t think that’s a fair way to handle debt and obligations.”

DeKalb’s pension was well funded in 2005, when the Dunwoody cityhood effort began, but it took on debts by the time Dunwoody incorporated in 2008. Pike said the pension liability wasn’t a factor in Dunwoody becoming a city.

County pension liabilities grew because of changes in accounting, early retirements and the economic recession, which reduced the value of investments. Today, the county’s pension plan is about 66 percent funded.

If Dunwoody and Brookhaven hadn’t become cities, those areas would owe the county a combined $2.5 million more each year toward unfunded pension liabilities, according to an analysis by Segal Consulting conducted for DeKalb. Cities still contribute roughly 75 percent of their areas’ share of previous pension liabilities because their residents pay county taxes for services like fire, libraries, sheriffs, jail, courts, water and sewer.

The founding of future cities would further strain DeKalb’s pension fund, said Jay Vinicki, the county’s deputy chief financial officer.

“It’s an extra burden for the citizens in the unincorporated areas,” Vinicki said. “It means the citizens left behind are the ones who will have to pay the bill.”

A leader of the movement for a city of LaVista Hills, Mary Kay Woodworth, said it was “disgraceful” that DeKalb’s government leaders didn’t budget enough money each year to maintain an adequate level of pension funding.

“There’s got to be a solution, and we’ll be willing to work with the county to figure out what that is,” Woodworth said. “We’re not going to make a commitment to contribute or not to contribute. We’ll have to see what happens during the legislative session.”

Kathryn Rice, who is seeking a city in South DeKalb, said the pension issue is motivating residents to support incorporation.

“If the pension liability didn’t exist, maybe we wouldn’t be pushing for cityhood so hard,” she said. “The people left remaining are going to be paying for it. We don’t want to be scapegoats.”

DeKalb hasn’t estimated how much of the pension cost would be shifted to unincorporated areas if more cities form. Boundaries and annexation proposals often change, and it’s unclear whether any of the areas will be approved by the Legislature or by voters in a referendum.

Potential cities like Tucker, which don’t anticipate starting a new police department, would likely continue paying the county for public safety services, and some of that money would fund pension liabilities. Stonecrest and South DeKalb also don’t plan police departments initially, though the cities could choose to add them later.