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Wed August 1, 2012
Seattle $1.1 billion short of funding pensions
The Seattle City Council is facing a $1.1 billion shortfall in its pension fund, according to a report to the Government Performance and Finance Committee (first noted by the politics and government blog Publicola).
The report states:
“This essentially means that the Retirement Fund should have an additional $1.1 billion on hand today in order to be fully funded over the long term. The unfunded portion represents an unprecedented 199% of covered payroll,” the report states.
And it will cost the city about $35 million per year to make up the difference. These are funds that will not be available for city services, hiring new workers, COLAs, or other benefits, the city’s staff says.
“The only alternative to losing those funds? Raising taxes (the city’s portion of pensions comes from the general fund, utility taxes, and other public sources). Broken down by household, the shortfall works out to just over $3,800 for every family in Seattle.”
In its report on California’s pension crisis, Reuters writes: “The pension problem … may be the mother of all budget issues – for California, for its cities and counties, and for other states and municipalities across the nation. … The bill is not due at once, but payments on it grow steadily and can eventually squeeze out even basic services. Public officials … and academics who have studied the issue, say the day of reckoning is nigh.”
The city’s staff also noted that there are “significant risks that required contribution rates could be forced even higher.” For instance, returns on investments may continue to falter and city hiring may not be as robust.
The city’s pensions are funded by returns on investments and payroll deductions from current employees.
“In pre-funded retirement plans, contributions provide about 1/3rd of the money needed to pay benefits. Returns on the investments are expected to provide the remaining 2/3rds,” the report explains.
Consequently, the staffers suggest the council may want to recalibrate its policies related to funding pensions.