$10,000 Trade-off

As an example of the trade-offs a Councilmember faces, consider this StarTribune story about the lawsuits between City Hall and old firefighter and police pension funds:

The city alleges that the funds are improperly including some fringe benefits that shouldn't be included in the salary base for calculating pensions. …  In pretrial rulings, [a Judge] found merit in substantial aspects of the city's arguments, and the two sides have engaged in extensive settlement discussions.

If the city wins, the decision could cut the property tax levy for pensions next year by $11 million, according to city finance officials.

The financial drain on the city also is increasing sharply next year, because of investment losses caused by market declines and because of a Legislature-approved change in assumptions about the longevity of retired police officers. Those costs are the biggest reasons that Mayor R.T. Rybak has proposed an 11.3 percent property tax increase for next year.

According to the reporter, the funds have made an offer that would reduce the City’s obligation next year by more than $14 million.

First, it appears the funds are offering more than the City hopes to gain through its suit, $14M vs. $11M. But I expect the devil is in the details. Are the funds offering a one-year adjustment, or are they willing to correct the seemingly inflated basis-of-pay calculations?

The Council’s first obligation is to the City as a whole, and if they’re working toward a permanent resolution over a short-term fix, they deserve credit. Keep in mind that the General Fund is $385M, and this pension problem is expected to cost $50M per year if not corrected.

The article states that the funds are currently supporting 1397 pensioners (retired police, firefighters, or their families). That 14-million-dollar offer divided across 1397 pensioners comes to just over $10,000 per person. This is not the only ten grand the pensioners receive, it is the last $10,000 on top of base-salary benefits which nobody is arguing.

Another way to look at the numbers show that the City’s hoped-for savings of $11M is just under 3% of the General Fund. But it is also 4.4% of total property taxes collected. Paying the full amount sought by the pension funds would mean another 4% hike in property taxes. And for that money, the people of Minneapolis receive nothing. The money would go to retired cops, not our current first responders.

It seems like the City made a mistake, or the pension funds worked themselves into a sweetheart deal. City Hall promised a defined benefit. Making that promise pretty much required a perfect prediction of the future, and perfect fiscal management to be sure there would be money behind the promise. Turns out the Council couldn’t predict the future or manage its our money.

Should those pensioners suffer for past City mistakes? Should current taxpayers suffer instead? How do we make the split?

There really isn’t a solution here, just a choice between trade-offs that leave someone with less than they worked for. There is a proposal to fold the old pensions into the State system, which softens the blow to Minneapolis, but just pushes the cost to people across Minnesota. By principle that’s not fair, either.

Tackling tough issues like this takes more than a tough attitude. It takes ideas. And some ingenuity to find better trade-offs that others do not see. This might be a great opportunity to unload some assets the City shouldn’t be holding anyway, like Target Center. Or the City could auction off property held by CPED. Use those proceeds to offset the pension obligation without raising taxes. The property was paid for with past taxes, so let the value pay off past promises.

The city also has the power to create value out of thin air. Our business community is hungry for industrial property. Adjustments to zoning to permit industrial uses could make near-worthless land into valuable property. And the City could capture that value to pay off the pensions.

As your Councilmember, I will look “outside the box” for the best option. I believe Minneapolis is not out of resources. We can make good on past promises, no matter how foolish they seem today. Rather than file suits and fight over how to divide costs, I propose making our financial pot bigger. Not City Hall’s part, but everyone’s. With humble and responsible government, we can shrink our tax burden today and into the future.

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