Lack of trust from employees is one of the hardest barriers to overcome for those attempting pension reform but in Chattanooga, officials think they have found the answer.
It started off with all the animosity one would expect. Last summer, as talk of rising pension costs escalated, an anonymous group connected to the local police and firefighter union chapters created the Facebook page Chattanooga Fire & Police Pension Enlightener in order to educate people about Mayor Andy Berke’s “attack” on the public safety pension fund. As the mission states, the page’s “hope is to dispel myths and half-truths that the mayor's office is perpetrating against the fund.”
At the time, the city administration had started working with a financial consultant to establish a task force made up of public safety employees, retirees, members of the business community and other city representatives to find a solution to the city’s increasing pension costs. The fund has a roughly $150 million unfunded liability and is 61 percent funded according to actuarial figures (80 percent is considered healthy.) In the 2014 fiscal year, Chattanooga’s public safety pension payments took up about 7 percent of its $215 million budget. In five years, costs were projected to rise to $20 million, or 10 percent of the budget with no relief in sight.
Among the Enlightener’s first posts was an invite to interested groups, including “...the [pension task force members] we trust” to request administrative and posting approval. Another early post asked seasoned fire and police members “what are some of the tactics from past fights” used by politicians to get what they wanted?
“There was a lot of misunderstanding on behalf of employees and taxpayers,” recalls Vijay Kapoor, the consultant from Public Finance Management Inc. who helped guide the task force through the process. “There was a lot of concern that the mayor was trying to come in there and gut the pension fund – that we had some fixed plan from the start and that we were going to railroad it through. And that’s just not the case.”
By the beginning of this year, the Enlightener’s posts had begun to take on a different tone. One in January described the plan proposed by the task force as a “good alternative” to what Mayor Berke was expected to push for. Another commentor reasoned that “all across the country have conceded to pay cuts to prevent layoffs and other deep cuts to their benefits.” Individuals have also posted their support for the task force's proposal.
The plan proposed by the task force that will be voted on by the Fire and Police Pension Board Thursday includes an average reduction in pension cost-of-living adjustments (COLA) to 1.5 percent from 3 percent. (Those with smaller pensions see a higher-than-average COLA and those with larger pensions will get a lower COLA.) It also phases in a 3 percent increase in current employee contributions over three years. Those two changes would help immediately reduce the city’s unfunded liability, boosting the pension’s status to about 71 percent funded.
On the labor side, some benefits would actually increase: Widows of retirees would see increased benefits and beneficiaries of those killed in the line of duty would get nearly double their current pension. The Deferred Retirement Option Program, which allows employees to increase their pensions by deferring retirement and continuing to work, was kept largely intact.
The proposed plan is an alternative to sending a more drastic plan out to voter approval. In California in 2012, San Jose and San Diego both sought and won voter-approved pension reforms that immediately brought on lawsuits from public safety unions.
By no means is anyone under the illusion that the proposal has made everyone happy. There are still angry posts by commenters on the Enlightener’s Facebook page and a group of retirees and some active employees has reportedly hired a Nashville law firm to contest the reduction in COLAs.
But with pension reform, there simply is no appeasing everyone. And a history of bad blood between the union and previous administrations didn’t help the city’s case. But what Chattanooga and public safety employees aimed to do is make the most people happy while keeping the plan sustainable for the city.
“We had to earn the trust in particular of the constituency groups who didn’t necessarily trust…what we were trying to achieve,” says Berke. “Their first response was that we were trying to kill the pension fund and take it over because there had been numerous attempts before.”
If the pension board approves the proposal, it goes to the city council for a vote. Berke says the process has been so open and debated he doesn’t foresee any problems with the proposal making its way to his desk for approval.
Officials here believe the process can easily be replicated for other cities considering a more mediated approach to pension changes. After all, Chattanooga got the idea after PFM helped Lexington, Ky. form a similar task force in 2012 that helped reduce that city’s roughly $296 million unfunded pension liability by nearly half.
“This is a tough process and difficult decision for any mayor,” Berke says. You’re talking about benefit issues for people who risk a lot for the city. By same token you have to be responsible knowing that a  percent-funded pension plan is not sustainable. Getting that through to people took a while.”