It's fourth and long in the public employee pension funding game, and a handful of plan sponsors are cracking open the trick-play book to come up with money to cover shortfalls.
In New Mexico, judges may seek an increase in court docket fees to cover a projected $14 million shortfall in their retirement system, which is part of the $7.5 billion Public Employee Retirement System of New Mexico, Santa Fe.
In San Francisco, the transit agency that runs the Golden Gate Bridge recently increased the bridge toll to $5 from $3 in part to help fund up a $5 million increase in pension contributions to the $128.5 billion California Public Employees' Retirement System and its bus driver pension funds.
Former Virginia Gov. L. Douglas Wilder has suggested that the $34.5 billion Virginia Retirement System, Richmond, buy state buildings, take responsibility for their upkeep and lease them back to the state, thus generating what he called a "cash windfall" for the state treasury.
Suffolk County, New York, facing a 217% increase, and maybe more, in its pension contribution for 2003, is considering selling bonds guaranteed by tobacco revenue and tax liens - things the county has never done before. The county might also use for its pension contribution an $8.4 million lawsuit settlement originally earmarked for construction of affordable housing. And if things get really bad, county Budget Director Robert Bortzfield said he would not rule out selling county land.
Land use in New Jersey
In New Jersey, some towns facing increased contribution rates to the statewide pension funds covering public employees are revamping their land-use ordinances to bring in more business and industrial uses. In this way, they hope to lessen the property tax burden that higher pension contributions will place on homeowners.
And Oregon, whose $31.7 billion Public Employee Retirement System is facing a $16 billion projected shortfall - roughly equal to the state's entire two-year operating budget - might just scrap its whole defined benefit plan and start over. The Legislature will make that decision early next year. In the meantime, state economist Tom Potiowsky suggested recently the state could sell parkland and that the Portland metropolitan area could sell green space to raise money. Later he said he was kidding. Sort of.
In Louisiana, local governments are preparing for service cuts and tax increases in response to the $621 million state Firefighters Retirement System, Baton Rouge, asking for higher contributions from its members next year. This even after the state earlier this year authorized a one-time, $9.5 million bailout for the system by raising state taxes on insurance policies sold in the state.
Meanwhile the economic pothole the country hit at full speed in 2000 has flattened tax revenues and dented budgets. Government officials in places like Philadelphia, New York City, Hawaii, California and even York, Pa., plan to raise taxes and cut services to generate the cash necessary to fund larger contributions to public employee pension funds depleted by investment losses. Bad economic times have made spare cash hard to come by for these governments, and consultants say this is just the beginning.
"A lot of public pension funds that were in good shape two or three years ago when the market was doing well are now in just OK shape," said Leslie Finertie, principal and consultant at Towers Perrin, San Francisco.
Added Michael Carter, public funds consultant at Gabriel, Roeder, Smith & Co. in Dallas, "Contributions are simply going to have to go up at some point and at a time when tax revenue is declining, adding more pressure. I'm seeing that in nearly every state I deal with."
Most pension funds use a smoothing mechanism that delays recognition of gains or losses over several years, Mr. Carter said. That means most public funds won't experience the full impact of stock market and interest rate declines for another two or three years.
But in some places, things are looking plenty bad already.
The Golden Gate Bridge, Highway and Transportation District, which operates the Golden Gate Bridge and a fleet of Bay Area buses and water transit, is facing a $15 million deficit next year and up to $250 million in five years because of increased costs and revenue shortfalls.
Employer contributions to CalPERS, as well as to its own $100 million bus driver's pension fund, were stopped when the stock market was thriving, CFO Joseph Wyre said. Now, contributions are needed to the tune of an additional $5 million annually starting next year.
"That's $5 million that we weren't paying out before; these are costs we didn't have before," he said. He said the resumption of contributions is simply "going back to normal."
Judges in New Mexico
Some in New Mexico think state judges there might be about to propose raising docket fees to cover a $14 million shortfall in their pension fund. Fabian Chavez, a former state legislator and now a member of the Public Employees' Retirement Association of New Mexico, has publicly criticized the way judges contribute to their own retirement.
While other state employees contribute 7.5% of their salary, judges contribute 5%. The difference is made up from court docket fees. Mr. Chavez said in an interview that, faced with the prospect of higher contributions to the state retirement system, the judges might elect to raise docket fees to cover the added cost. The judges have petitioned, albeit unsuccessfully, to do so in the past, he said.
"It's just wrong for the judiciary to establish any part of its contribution based on fees collected," Mr. Chavez said. "It's wrong, and in my opinion, immoral."
In New Jersey, local municipalities expect to be socked for a collective $200 million contribution to state pension funds in 2003 and likely more in 2004, according to the Division of Investment in Trenton, which manages the assets of the seven state pension funds. That has local leaders scrambling for cover, said William G. Dressel Jr., executive director of the New Jersey State League of Municipalities, Trenton.
"It's going to have a horrendous impact on many municipal budgets throughout the state," Mr. Dressel said of the higher pension contributions. "Our only real source of revenue . . . is the property tax. Short of some town harvesting money trees on the city-held lawn, there's no other source of revenue. It's going to mean, at the very least, either property tax increases or curtailment or reduction of services, or a combination of both."
Mr. Potiowsky, Oregon's state economist, said in an interview that his suggestion to sell parkland and green space to ease pension underfunding "was said in jest." He added, however: "If you look at what options are available if you don't raise taxes, you're faced with some very dire situations. They may include liquidating whatever assets you have in order to cover the contribution."
Selling land generates a one-time cash infusion that can be used to cover a pension contribution for one year, said Al Shannon, a school district services specialist with the Oregon School Boards Association in Salem. But then next year, the school district would be faced with the same cash crunch, this time with no land to sell.
"It's like tapping your savings account," Mr. Shannon said. "Once it's gone, it's gone."