By Tom Blumer | For Ohio Watchdog
The city of Cincinnati is facing serious financial trouble, and no one really seems to care.
In a story that should have stayed on its homepage for several days but instead was gone within hours, the Cincinnati Enquirer reported on Saturday the city must pay at least $85 million into its $2 billion pension and retiree health care system next year.
Cincinnati is alone among Ohio’s major cities in that its employees do not participate in any of the state’s five statewide retirement systems.
In the past year alone, the Enquirer’s Cliff Peale notes, the Cincinnati Retirement System’s unfunded liability has ballooned by 22 percent to a whopping $870 million, or just under $3,000 for each man, woman and child living within the city’s limits.
Not that it’s much consolation, but the city is far from alone.
A Pew Charitable Trusts study released in January and based on fiscal 2009 financial information looked at pension and retiree health care funding in 61 cities throughout the U.S., including each state’s most populous city and all others with more than 500,000 residents. As to pensions, it found that while 24 of those cities were adequately funded on an actuarial basis — meaning that they had assets in their plans sufficient to cover 80 percent or more of their estimated future liabilities — 37 were not, including eight that had funding levels of 60 percent or less.
Health plans reviewed by Pew were in far worse shape. A majority of the plans in these cities, including Buckeye State capital Columbus, had no assets, meaning that these costs are handled on a pay-as-you-go basis out of tax collections. This is a very dangerous and potentially bankrupting practice, given spiraling health care costs, growing retiree populations, weak economic growth and, in many cases, declining urban populations. Sixteen other cities with assets of 10 percent or less of estimated liabilities were for all practical purposes also in pay-as-you-go situations. Only two had funding levels greater than the 50 percent threshold Pew considered acceptable for such plans.
Based on the figures presented in the Enquirer’s report, Cincinnati’s combined funding level is 70 percent, or $2 billion in assets with $2.87 billion in liabilities.
Though it should not have been totally unexpected, the news of the required $85 million payment seems to have caught city leaders flat-footed.
Back in March, its City Council majority thought it had averted what it alleged was an imminent fiscal crisis by passing an “emergency” ordinance enabling the city to negotiate a 30-year lease with a private company of its parking-meter system and parking garages. It anticipated an upfront payment of $92 million.
Immediately upon its passage, a politically diverse coalition of outraged opponents went to court and stopped the ordinance from taking effect. The group launched an ultimately successful petition drive to place the matter on the November ballot. They accomplished this despite threats by city leaders, particularly Mayor Mark Mallory, who claimed that anyone signing a ballot petition was “signing a pink slip for a cop or firefighter.” Whether voters will get their chance to weigh in this fall depends on the outcome of still-pending litigation.
In late May, once it became obvious that the parking deal would not be consummated in time, the City Council thought they had figured out a way to balance next year’s budget without police or fire layoffs, though it did let go of 63 city employees.
Mallory and others claim they were able to save police and firefighter jobs because tax collections grew faster than expected.
But the pension contribution news put a stop to any thoughts that the city had bought itself breathing room. The Enquirer’s Peale notes that the required payment now threatens the city’s ability “to balance its own operating budget this year.”
Delays in dealing with the problem could be costly. In April, bond ratings agency Moody’s included the city among 29 municipalities whose debt obligations were “placed under review.” Moody’s said Cincinnati’s retirement system may be one where “liabilities are underreported from a balance sheet perspective.” A downgrade of the city’s bond rating is quite possible.
As has so often been the case in recent years, city leaders don’t seem to appreciate the seriousness of the situation. Its leaders are bound and determined to build a 3-1/2 mile streetcar commuter and tourist attraction, even though its cost has doubled to a current $180 million, and even though their assumption that there will be no net ongoing operating costs flies in the face of worldwide experience with such projects. In recent days, it has approved a $12 million “forgivable loan” to a company wishing to build a grocery store at a proposed 30-story downtown apartment tower.
Finally, the city seems unwilling to do anything beyond nibbling around the edges to control the cost of its still extraordinarily lucrative retirement plans. They still include limited cost-of-living pension benefit increases for retirees. Their benefit formulas are, like so many other public-sector plans, extremely generous.
A city with a declining population and a growing percentage of low-income residents simply cannot afford to maintain expensive and unpredictable defined-benefit pension plans. While keeping promises made to those who are already retired and those who are within 10 years or so of retiring, the plans need to be terminated for everyone else in favor of saving plans whose cost is predictable and whose responsibility for their adequacy rests on employees’ shoulders.
It would be nice to believe otherwise, but the numbers simply don’t work. If it doesn’t make such a move soon, the city has a rendezvous with bankruptcy in its not too distant future.