The Oct. 9 City meetings began with a robust discussion of pension liabilities. It will come as a surprise to no one the news was not particularly good.
The discussion at the Administration and Public Works committee meeting included presentations by City Chief Financial Officer Marty Lyons, Darren Daugherty of the Firefighters pension board, and the City’s pension auditor Jason Franken of Foster & Foster. The bottom line: The City’s police and fire pensions have an estimated unfunded liability of about $121 million, and a total liability of between $214 and $221 million.
The numbers vary because, by necessity, assumptions are built in: estimated lifespan of recipients, estimated return of investment, marital status and estimated lifespan of spouses.
One immediate factor facing the City is the estimated return on investment, currently 6.5%. “We don’t necessarily need to change our assumption,” said Mr. Franken, speaking of the return figure, “but we are effectively deferring contributions into the future. … If you pay later you have to pay a whole lot more.”
Mr. Daugherty said both the police and firefighters appreciated the work done by the City and pledged to continue to work with Council into the future. He said the boards would “bring potential tools to deal with unfunded liability” to the attention of Council, saying current funding levels were 42% funded for fire and 43% funded for police. “All numbers are based on best guesses,” he said. “Last year we adjusted mortality tables” to more realistically reflect actual anticipated lifespans. “We are getting closer to reality,” he said.
Mr. Daugherty said the City faces several choices: stay the course; raise revenue primarily through increased property taxes; purchase long-term pension obligation bonds to fund pensions now and pay them over time; or sell assets such as a parking garage to raise funds. He said “we’re not interested in” raising property taxes.
A parking garage would bring in an estimated $40 million, a solid chunk of the $121 liability gap.
Mr. Daugherty also mentioned a “fire-impact fee” on larger buildings, which could raise about $500,000 a year.
Interest rates are at historic lows said Alderman Ann Rainey, 8th Ward. “If we’re going to bond, now is the time.” But she also noted that money borrowed is “above the risk-free rate,” and if return on investment was below 4.5% bond interest, the City would lose. She also said the “bond-rating agencies are neutral to negative to this approach.”
Council promised to revisit strategies in the future. The the other pension fund for City employees, administered by IMRF, is not underfunded at this time.
At the Planning and Development Committee, a proposed vacation rental on Madison Place caused concern among several nearby neighbors. The City’s vacation-rental ordinance, passed a couple years ago, requires any property seeking short term rentals through services like Airbnb, must obtain a license to do so. The ordinance requires notice to neighbors.
The process worked. Concerned neighbors appeared at Planning and Development to express concerns about what it meant to the neighborhood and about possible criminal elements who might stay in the Airbnb.
Alderman Robin Rue Simmons, 5th Ward, said, “We had similar concerns in our neighborhood, and notice went out. … I’m asking that we hold this.” Committee members urged neighbors to meet with the applicant, who was present. The matter will be held until the next meeting.
Parking Problems for Nic’s
A proposed new Nic’s Organic at the corner of Crawford Avenue and Gross Pointe Road was held in committee pending resolution of parking issues. Alderman Tom Suffredin, 6th Ward, said, “In light of the parking situation, I’d ask that nobody support this,” he said. “There’s nothing to show they have any permission to use the [parking] lot.” The lot is owned by CVS.
Alderman Melissa Wynne, 3rd Ward, said the applicant should sit down with Ald. Suffredin and “he can explain to you why it’s important why you have an enforceable agreement.” The matter was held pending resolution.