BY BRIAN McGILLIVARY
TRAVERSE CITY — City taxpayers shelled out more than $1 million per year over the past decade to support city police and fire pensions, thanks largely to flat economic growth over the past decade.
Interest earnings on invested money should pay for about 65 percent of the cost of paying pension benefits, said Bill Twietmeyer, city treasurer. But the $23.7 million in assets managed by a local five-member pension board is almost exactly what the pension fund had set aside in 2001.
"I believe it has under-performed; we haven't met our goals," said Jerry Jenkins, a city pension board member. "If the market continues to get better, we will slowly get back, but these market gyrations, we took a huge hit in 2008. It killed us."
The police and fire pension fund lost about 35 percent when the stock market collapsed in 2008, or about $7 million. It also took a big hit in 2001 and 2002 when the market fell, Twietmeyer said.
The losses created an unfunded $14 million liability that hurts the city's credit rating, raises employee costs, and forces increasingly larger tax hikes on city property owners.
Voters created the pension system in 1971 as part of the city charter. State law requires it be funded by a direct millage levy on property owners.
Since 2009 that millage levy has risen 70 percent to 2.32 mills in 2012, and Twietmeyer expects it will rise again this year. The millage costs the owner of a home with an $85,000 taxable value almost $200 a year in taxes.
About two-thirds of the $1.5 million the millage raised in 2012 went to pay down the unfunded liability.
High pension costs played a role in the city commission's desire to downsize its two public safety departments.
"While the number of employees goes down, the percentage of the budget that goes to pensions increases all the time," Mayor Michael Estes said. "It would be nice to do something else with that money."
The rising tax rate and poor returns have led some to criticize the pension management board.
Estes voiced concern that the board is administered by union members who benefit from the pensions and said it has under-performed.
The board has two union members, Chad Rueckert from the fire department and Jim Bussell from the police department. Twietmeyer and two city residents appointed by the city manager, Jenkins and Ward Kuhn, round out the board.
Twietmeyer noted all members of the board have something to lose when the fund doesn't meet expectations, including the unions.
The city capped cost of living increases in the pensions over the last 10 years, reduced the benefit amount for new hires, and required employees to contribute to the pension.
The board failed to hit its goal of 7.5 percent annual returns over the last decade, but Twietmeyer said that's due to the economy, not investment choices.
The board relies on a professional investment advisor to help it decide where to put its money. Most of its returns have bested various market indexes such as the Standard and Poor's 500 Index, but the market generally remains below the peak it reached in 2000 and early 2001, Twietmeyer said.
"If the U.S. trends with Japan and we have two lost decades of flat economic growth instead of one, I fully expect the millage to continue to rise," Twietmeyer said. "If our country can get its economy rolling again, the millage will stabilize and then start to go down."