City employees took it in the shorts this week when a majority of City Council expressed support for not giving any raises next year and slashing the city's share of health benefits.
The premium cuts will cost employees $60 to $158 more per month, depending on their coverages, while saving the city roughly $2 million a year. The city now pays 92 percent and employees 8 percent; under the 2011 proposal, the city would pay 80 percent and employees 20 percent. Mayor Lionel Rivera says he'll push for the same split at city-owned Colorado Springs Utilities.
But the gorilla in the room for tax-supported city government is growing pension costs. For unsworn personnel, taxpayers will pay roughly $8.75 million for a program that allows city workers to receive up to 100 percent of their annual pay after retirement. Last year's tab, before the bulk of the city's layoffs, was $10.3 million.
Because the city participates in the state's $35 billion Public Employees' Retirement Association, benefits are far more generous than those received by many taxpayers who are footing the bill. The city pays 13.7 percent of workers' pay into PERA, much more than employees' 8 percent. In contrast, workers who pay into Social Security give 6.2 percent, an amount matched by employers. (All employers, government and private sector, and employees also pay 1.45 percent payroll tax to Medicare.)
According to the benefit structure on PERA's website, employees with as few as five years of service are entitled to 12.5 percent of their salary when they retire at age 65. Those who retire at 65 with 35 years of service are paid 87.5 percent of their salaries, and those who retire at 65 with 40 years of service get 100 percent.
Hence, a high-level Springs Utilities manager who is paid $200,000 a year and retires at age 60 after 35 years of service would receive $175,000 a year in retirement. In contrast, for a worker retiring at age 66 in 2010, the maximum Social Security benefit amount is $28,152 a year, according to the Social Security website.
That's why many employers adopt 401(k) savings plans, which enable workers to defer income into a retirement account. Some employers match the amount or cap it at 2 percent to 5 percent of pay.
The Pikes Peak Area Council of Governments, for example, which pays into Social Security, limits its match of retirement savings to 2 percent of a worker's pay.
The difference between retirement benefits of many taxpayers and those of city workers isn't lost on Councilor Randy Purvis.
"It's exceedingly tough to deal with, quite frankly," he says of the PERA benefit. "In a good economy when people are content in their retirement, most shrug [at the city PERA benefit]. But in an economy like this, where people are looking at working till they're 70 to 75 and retirement seems unattainable, it's a pretty bitter pill to swallow."
Purvis is particularly discouraged at the situation created by state law: The very employees who are receiving the generous pensions would have to vote to allow the city to escape from PERA. A 65-percent majority is required. City Council also would have to approve a pullout, and then the city would have to make a payment, perhaps up to $40 million, to PERA to assure benefits continued through current city workers' lifetimes.
The growing PERA obligation, Purvis says, is why Council is scouring other benefits for savings. Despite the city not having given raises for three years, the average city worker's compensation, including salary and benefits, has gone up by 3.8 percent since 2007, to $86,085 this year largely because of benefit increases, not across-the-board pay hikes.
"We're in a position where salaries are not going to change much over the next several years," Purvis says. "The city doesn't have the funds for it, and I don't see a compelling reason to adjust them up, given the high cost of providing the retirement benefits and the fact that we're in a zero-inflation economy."
To change PERA, he says, would require action by the Colorado General Assembly, and change isn't likely unless Republicans recapture the majority. If that day comes, he favors two changes: Giving governing bodies exclusive authority over withdrawal from PERA, and allowing a multi-year period for paying the actuarial payment required to pull out.
Rivera shares Purvis' concerns, noting the PERA obligation keeps growing as more money is needed to fund retirements of public employees. When Rivera was elected to Council in 1997, the city's contribution was 9 percent.
The mayor says he's already talking with the area's state legislative delegation about amending PERA laws to allow the city to split the retirement payment with employees 50/50. That would reduce the city's payment to 10.85 percent from 13.7 percent, which would scale back the city's cost by one-fifth, saving taxpayers about $1.75 million annually.
A bill with that provision sponsored by Republican Rep. Kent Lambert was defeated last year, but Rivera wants to try again. "I don't see how any Democrats or Republicans could oppose that," he says. Down the road, Rivera supports ending PERA for new employees.
Not all city workers are covered by PERA. Sworn police and firefighters have separate pension funds, which also threaten to capture more of the city's budget in the future.