Atlanta’s unfunded pension liabilities grew from $321 million in 2001 to $1.5 billion in 2009 and the pensions are just 53 percent funded – well below the 80 percent level considered healthy. As Mayor Kasim Reed put it, “The stark reality is that one of every five dollars is currently going to fund a pension system that is strangling our city.”
In 2001 and 2005, the City Council handed out lavish pension increases and compounded its errors by applying those increases retroactively. The true costs of these moves were temporarily hidden by better economic times, but the benefits are clearly excessive and unsustainable.
In order to stop the financial bleeding, the city should shift all new employees to 401(k)-style defined-contribution plans like those typically offered in the private sector. The city and the employee would contribute a specified amount each year into a retirement account controlled by the employee. This would move away from the city’s existing lavish defined-benefit plans, which guarantee a large percentage of an employee’s salary for life and leave taxpayers on the hook for any funding shortfalls.
There’s a reason nearly every company in the country has abandoned defined-benefit plans: They are unsustainable. Why do around 90 percent of Atlanta’s police officers retire at age 55? The retirement benefits are simply too good to pass up. That’s great for a select group of employees, but terrible for all the taxpayers stuck with the bills.
Going forward, Atlanta should require that any future pension benefit increases be approved by taxpayers. Voters in San Francisco and San Diego, for example, get the final say on benefits increases, helping limit politically motivated pension handouts.
The city must also prohibit sweetheart, retroactive benefit increases in the future. Atlanta should explore its legal options to rescind the retroactive portion of the 2001 and 2005 increases, which essentially forced taxpayers to pay government employees again for work they had already performed and been fairly compensated for.
To address the mounting debt, some leaders have suggested tax increases. Taxpayers have been fleeced enough. Competition for government services is a better option. Atlanta should copy the example of Chicago, where Democratic Mayor Richard Daley has partnered with the private sector to reduce costs. Does the government need to run parking meters or garages? A company paid Chicago $1.16 billion to operate its 36,000 parking meters and the city leased four parking garages for $563 million. Atlanta should evaluate all programs from scratch and eliminate those that are low-priority, duplicative or simply not working.
Such solutions can help tackle the massive pension liabilities while being fair to both employees and the taxpayers who are paying the ever-growing bills.
Adam B. Summers is a policy analyst at the Reason Foundation. This column first appeared in the Atlanta Journal-Constitution.