Fayetteville attorney proposes plan to save old fire, police pensions
Posted: February 16, 2016 at 1 a.m.
FAYETTEVILLE -- The city attorney proposes voters decide whether to pay more property taxes for about 90 retired police officers, firefighters and their widows' pensions.
The pensions are covered by the city's old Firemen's and Policemen's Relief and Pension Funds, which closed to new members three decades ago. They each take in 0.4 mills in property taxes, or about $24 a year combined for the owner of a $150,000 home, and are both running out of money. In a memo to City Council members, City Attorney Kit Williams suggested asking voters to bump the tax up to 0.7 mills.
By the numbers
Fayetteville Firemen’s Pension and Relief Fund
• Members: 51
• Benefit: About 90 percent of ending salary
• Average yearly benefit: $26,575
• Lowest yearly benefit: $1,308
• Highest yearly benefit: $73,308
Policemen’s Pension and Relief Fund
• Members: 42
• Benefit: About 90 percent of ending salary
• Average yearly benefit: $35,034
• Lowest yearly benefit: $4,872
• Highest yearly benefit: $94,752
Source: City of Fayetteville
The changes would cost the same homeowner another $18 a year while perhaps bringing an end to a yearslong dispute over the funds. The increase could make the funds solvent, allow them to consolidate with Arkansas' healthier pension system and bypass legal questions about the funds' fates all at once, Williams said.
But first the plan goes to the City Council. Several council members last week said the city must take care of the people who worked to protect others, but they're also ambivalent about shelling out more money to help pension boards that have led their funds toward an approaching dead end. They said a public vote might be the easiest option to accept.
"I don't like the way we got here as a city. I don't like the way that group's board of directors kept raising their rates without, in my opinion, the thought of what was going to happen in the future," said Justin Tennant, an alderman representing Ward 3. "But that is where we are now, and there's no denying it, and there's no getting around it."
Meanwhile, some pension board members are convinced the council could simply raise the millage itself and save the time and trouble of an election.
"I think it's taking the heat off the City Council members -- it is an election year," said Pete Reagan, a retired firefighter who's one of 51 beneficiaries of the firemen's fund, according to documents presented at the board's January meeting. The police fund pays 42 people.
The city switched police and fire pensions to the Arkansas Local Police and Fire Retirement System, commonly called LOPFI, in 1983, closing the funds to new members.
The old pension funds' problems stretch back years. They started out paying 50 percent of members' ending salaries, but the boards, which are mostly retirees, have gradually raised those benefits to about 90 percent, each time with an actuary's opinion that the funds could handle it. Beneficiaries aren't eligible for Social Security and often rely on their pensions, board members have said.
Now, a pensioner receives an average of $30,395 per year, or roughly $3 million every year for all 93 beneficiaries.
As a result, the pensions are paying out hundreds of thousands of dollars more each year than they bring in through city and state taxes and investment income. The firemen's fund is expected to run out in less than a decade, while the police fund is somewhat healthier but still dwindling.
Last fall the firemen's board approached the City Council with the idea of consolidating with LOPFI to save the fund. Council members balked at the prospect of committing an unknown amount of money, which the city would pay if LOPFI's own income wasn't enough for the fund, and criticized the fund's handling.
That's where several legal disputes between both boards and Williams come in. Williams said he believes the city's owing general fund money to LOPFI would be an unconstitutional extension of credit, the boards could reduce benefits to save money and it's unclear if the City Council can change the millage on its own.
Board members disagree on all points, saying the funds are the city's responsibility and asserting voters half a century ago gave the council permission to levy up to 1 mill for the pension funds.
Those questions all remain contested, but Williams said a plan combining the LOPFI consolidation plus a public vote on a millage increase would sidestep them. The city wouldn't take money away from its other functions, avoiding the credit quandary. The board wouldn't need to reduce benefits but also wouldn't increase them further, at least under the past version of the LOPFI agreement. And the will of the people would trump questions on the council's authority.
Finally, the 0.3-mill increase would inject about $400,000 each year into each fund, which should be enough to keep them going, Williams said.
"In my opinion, we should do everything possible to ensure the legality and constitutionality of taxes before they are levied and imposed," Williams wrote in his memo. "In this case, that would include trusting our voters and obeying their decision."
Paul Becker, the city's chief financial officer, cautioned against counting on a set millage when the funds' investment income can't be guaranteed. In an email to council members, Becker suggested asking voters to allow up to 1 mill. Williams replied he believed 0.7 mills would do better in a vote.
Tennant said the number is the first thing to decide. After that, council members broadly agreed with Williams' general idea.
"I think at this point it does need to go to the voters to approve any additional millage increase," said Alan Long, Ward 4 alderman, adding that he preferred a range to a set millage amount. "We're going to have to have a very serious discussion during a City Council session."
John La Tour, the other Ward 4 alderman, last year often said any solution should go to a public vote. Last week he said he still felt that way but added the boards should have kept the funds healthy.
"In my mind, those four firemen breached that duty," he said, referring to the retirees on the firemen's board. "I prefer it to be a public vote, but I don't know that I'd campaign for it."
Reagan said Friday he still believed the council could raise the millage but welcomed the proposal.
"We're looking for resolution -- we've been looking for quite some time," he said.
NW News on 02/16/2016
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