Cities carry the bigger burden

By Alan Kemp

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The Iowa League of Cities and the 49 cities participating in the Municipal Fire and Police System of Iowa recognize the importance of public safety and of the men and women in our communities who provide this invaluable service. A sound pension system is an important part of recruiting and retaining full-time public safety personnel.

The ability of a city to thrive and attract new business and industry is directly related to providing a safe place for our residents to work and live. However, there must always be a balance between cost and benefit. Public safety costs for full-time police and fire are the largest portion of the budget for most of the 49 cities participating in this pension system. These cities represent

62 percent of the state's total population.

Because public safety costs make up a big slice of the city budget “pie,” large cost increases to pensions matter greatly to these cities' bottom lines. These costs are paid for by residents exclusively through property taxes.

Systemic inequities in the way this pension system functions should be addressed before the situation worsens.

Volatile investment returns and escalating contribution costs within the systems fall strictly on the cities, and are not shared proportionally by the employees. Employees are insulated with a contribution rate of 9.40 percent that can be changed only by the Iowa Legislature. The city share of the contribution rate has no ceiling. Because of this structure, city rates have increased dramatically in recent years and are projected to keep climbing to keep the system financially sound.

Actuarial projections show a 66 percent overall increase in city contribution rates over the next three years. This means the 49 communities will have to come up with an additional $32 million over the next three budget years, with city contribution rates topping out around 30 percent of an employee's covered wages. These figures are based on projections in which the system's actuary assumed a 7.5 percent rate of return.

The bad news: The latest figures for the fiscal year that ended June 30 show a return of between only 1 percent and 2 percent - well below the assumed 7.5 percent. That will translate to even higher city contribution costs for the next fiscal year, when the new city contribution rate is set this fall.

Often the argument is made that the system is a benefit to cities to the extent that they do not pay workers' compensation or Social Security. Some of the member cities do contribute to Social Security. While it is true that no workers' compensation benefits are provided under this pension system, Chapter 411 clearly states that participating cities are responsible for paying all hospital, nursing and medical benefits. Cities are also to pay the employee's full salary when off work because of a work-related injury until the employee either returns to full duty or is determined to be permanently, totally disabled. These costs are not covered by the city's group health insurance policy, nor by the city's workers' compensation insurance.

Cities do not have direct authority to change the benefits and share of employee contribution - only the state Legislature can do that.

Simply waiting for the market to get better is not a solution in the eyes of the participating cities. The League and the 49 communities have long advocated for proactive changes that would create a more equitable pension system and lower costs. The cities seek solutions that create a better partnership between employer and employee, such as a 60/40 contribution rate split, or raising employee contribution rates to a more equitable level.

Many options exist for working toward a better system, and we look forward to finding a solution together with public safety groups, the governor and the Legislature.

Alan Kemp is executive director of the Iowa League of Cities (www.iowaleague.org). Comments: alankemp@iowaleague.org