Kansas City’s pension plans are healthier, but at higher costs to taxpayers

Kansas City taxpayers will spend $80 million this year to help finance pension systems that cover firefighters and other city employees.
Kansas City taxpayers will spend $80 million this year to help finance pension systems that cover firefighters and other city employees. kmyers@kcstar.com

Kansas City taxpayers are spending a lot more these days to keep firefighters in ambulances and police officers patrolling the streets.

But the rising expenses aren’t caused by dramatic jumps in workforces or compensation.

Instead, in just the last two years, City Hall has spent millions of extra tax dollars to cover future pension payments for public safety workers and other city employees.

The infusion of funds has had a positive result, although it’s not as encouraging as was once expected.

The city’s large and important retirement plans are slowly getting in better financial shape. Thousands of public servants will have a better chance of getting the funds promised to them. In addition, it’s less likely that the city will have to scramble to find huge amounts of public revenues in, say, 10 or 20 years to keep the pension systems solvent.

But there’s also a big downside to diverting current funds to pension payments: City Hall has a lot less money to provide other basic services to residents, such as repairing roads and bridges.

The Star this week reviewed the recently released annual reports for the four city retirement systems. They cover police officers, civilian police employees, firefighters and mostly blue-collar workers in other city departments.

We began this practice in 2011, when a special task force started scrutinizing the city’s fiscally challenged pension plans. After more than 18 months of work, the panel recommended several ways to make them healthier.

The key requirements eventually approved by Mayor Sly James and the City Council were contributions of an extra 1 percent of pay by city workers; slightly less generous benefits for newly hired workers; and dramatically increased city payments.

The new reports contain three key takeaways:

▪ The four pension systems as of April 30 had assets of $2.432 billion, or $555 million less than their liabilities.

That’s a significant shortage, although it is down for the third consecutive year after reaching a negative $611 million in 2012. The city is ever-so-slowly moving in the right direction.

▪ All four retirement plans remain far short of being fully funded. In fact, only one is more than 80 percent funded, which some pension experts recommend as a minimum goal.

The leader is the city retirement plan covering mostly blue-collars workers. It reached 87 percent funding in the 2015 fiscal year, up from 84 percent last year.

But the police officers’ system remained stuck at 77 percent funding this year. The firefighters system nudged up a single digit to 79 percent, while the small police civilian plan also increased a bit to 79 percent.

▪ The city this fiscal year plans to funnel $80 million in tax revenues into the pension plans — a whopping 46 percent more than just three years ago.

That increase of $25 million a year has forced City Manager Troy Schulte and the City Council to cut back other expenses. City workers are sharing some of that pain; they are not scheduled to receive a pay raise this year. The city also extended some debt payments, freeing up funds for current costs but ensuring higher future expenses for taxpayers.

The shortfalls in the pension funds remain a concern, especially because all once were in much better shape.

In 2002, the police officers’ plan was 96 percent funded, the employees’ system was at 101 percent and even the firefighters’ package was at 87 percent.

The persistent funding shortages in the large police officer and firefighter plans are the most troubling. The city is kicking in big amounts of revenue to help those systems stay afloat.

According to City Hall budget documents, taxpayers will spend $28 million this fiscal year to help finance the law enforcement retirement system. That’s up 64 percent from three years ago.

Taxpayers will shovel almost $18 million into the firefighters’ pension plan — 40 percent more than three years ago.

In one often-overlooked benefit for these public safety retirees, they also receive supplemental payments designed to pay for their health care costs. That expense to taxpayers has tripled since 2012 to $4.5 million annually.

Across the nation, cities, states and companies are struggling to finance adequate pensions for public servants.

Kansas just borrowed $1 billion in a bid to boost its funded reserves over the next few years. In the private sector, financial ills of a large Teamsters fund could lead to cuts for 400,000 pensioners.

Kansas City officials deserve credit for their actions so far. But even more moves — increases in employee contributions or lowered future benefits for new workers — still may be required to keep all of the plans solvent.