YES: Both the mayor and city council showed leadership in tackling an enormous problem.
By Phil Kent and Richard Anderson
Mayor Kasim Reed’s leadership on pension reform — and the recent unanimous vote by the Atlanta City Council — show what Atlantans can accomplish when we all work together toward the same goal. With pension reform, the goal was huge: To ensure that the city of Atlanta can meet the obligations it has made to city employees — and save an estimated $500 million over the next 30 years so Atlanta can invest in public safety, infrastructure and other needs that will help keep tax-paying residents and attract businesses that will create new jobs.
There’s still much work to be done on pension reform, but Mayor Kasim Reed, the City Council, city employees and civic and business leaders have worked together to accomplish what few other cities and states have been able to achieve: real pension savings that will make this a better and more attractive city.
Atlanta’s fundamental reform is strongly in the tradition of Atlantans coming together to solve tough challenges. City leaders took a message of reform to city workers and their associations, informing them that the current pension system was unsustainable, that it would force the city to eliminate more jobs, and that city government risked not being able to deliver on the pension benefits it had promised. As a result, city workers and their associations became fully engaged in the process. The willingness of city employees to make sacrifices was key to enacting reform.
The mayor and other leaders also educated the business and civic community on the difficulties of attracting new business with one-fifth or more of the city’s annual budget consumed by pensions. Civic and business leaders agreed to help, and the mayor’s pension review panel studied a range of options and presented those to the city.
City leaders’ efforts culminated in council’s unanimous approval of a pension reform plan that the Wall Street Journal calls the most sweeping in the nation. The plan saves $22 million this year alone, plus an estimated $270 million over the next decade. And City Council put in place a mechanism to ensure that an unfunded liability of $1.5 billion will be eliminated over the next three decades.
There’s still much work to be done. The city needs to focus on the performance of its large cadre of asset managers and reward those who deliver consistent results. The city must carefully monitor the returns on its investments to ensure they are sufficient to meet current pension obligations while paying down the unfunded liability. And in order to sustain the savings over time, city leaders must resist the temptation to increase the defined benefit of city employees in the future.
But in the end, Mayor Reed, Council President Ceasar Mitchell and the council as a whole have shown how government can best deliver for the citizens they serve: by setting aside political differences for fundamental changes that will remain long after they leave office. And unions, city workers, business and civic leaders have shown that the “Atlanta Way” is to come together to solve our problems in a win-win for all.
Phil Kent, chairman and CEO of Turner Broadcasting, is chairman of the Atlanta Committee for Progress.
Richard Anderson, CEO of Delta Airlines, is a member of the mayor’s pension review panel.
NO: Taxpayers are still on the hook for $1.5 billion unfunded liability.
By John S. Sherman
The Fulton County Taxpayers Foundation believes that the actions taken by the mayor and City Council do not go nearly far enough to secure Atlanta’s financial future.
The unaffordable and retro-active defined benefits enhancements, passed by the City Council in 2001 and 2005, are still very much a part of the city’s defined benefits plans, and will be so into the future for present employees.
The only substantive change that the council has made is that the present employees will pay an additional 5 percent of salary for this continuing and growing benefit.
New employees will also go into the defined benefit plan but will get a 1 percent multiplier (the rate at which an employee accumulates future pension benefits) for 8 percent of salary contribution.
Sadly, the projected “savings” of possibly $25 million per year is mostly coming from new employees overpaying for this benefit.
The 1 percent multiplier discourages new applicants for police and firefighters. To motivate new firefighters and police, we think that the mayor and City Council will eventually have to allow new firefighters and police a multiplier higher than 1 percent.
The city also still refuses to participate in the national Social Security system. The Taxpayers Foundation feels that the city has made this decision due to budget pressures (it does not want to contribute the 6.2 percent of payroll to the Social Security Administration every payday). This is penny wise and pound foolish and continues to keep the taxpayers on the hook for substantially all of the retirement benefits of employees.
Councilman Howard Shook proposed — and the City Council approved — a provision that if the government’s contribution reaches 35 percent of payroll, then all employees will have to contribute an additional 5 percent of salary.
The impact on salary should have shocked the unions’ leadership.
The contribution for existing employees could jump to 18 percent under this scenario, and 13 percent for new ones.
Such a situation will produce great pressure for pay raises; hopefully, no such promises have been made.
We believe that the payments for the amortization of the $1.5 billion shortfall in the pension funds — increasing each year — will bankrupt the city within the next five years.
For that reason, the Taxpayers Foundation will press ahead with its lawsuit asking the Fulton County Superior Court to declare the 2001 and 2005 huge increases void based on the fact that there were no financial impact or actuarial studies undertaken, as required under the city’s charter.
The 2001 and 2005 increases involved seven City Council ordinances, with the city’s charter requiring a financial impact study and an actuarial study for each ordinance. In 2010, the Taxpayers Foundation requested copies of each study, but the chief financial officer at the time, Jim Glass, told us that he “could not find a single financial impact study or actuarial study for the 2001 and 2005 increases.”
In the best interests of the Atlanta taxpayers, the Taxpayers Foundation intends to take this case all the way to the Supreme Court if necessary.
John S. Sherman is president of the Fulton County Taxpayers Foundation.
