GR must rein in pension, health costs

October 11, 2010
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Now that the chickens have gone to roost elsewhere, the request for a street lighting fee has been soundly rejected, and Grand Rapidians’ generosity led to three open city pools this summer, our city leaders need to report how they plan to address the major causes of the continuing budget shortfalls, namely the defined benefit pension plans and the rich health insurance offered to employees and early retirees.

Four months ago, citizens agreed by a margin of just 204 votes to pay a higher city income tax. The claim at the time was that the additional $7.5 million was needed over the next five years to “transform” city government while maintaining fire and police protection. Next year, $15 million, twice the amount raised by the city income tax increase, will need to be diverted from the General Operating Fund, which supports services, fire and police, to pay for pension fund shortfalls.

After narrowly approving the income tax increase, the response to the city’s subsequent request for a street lighting fee was loud and clear: Stop spending and start cutting expenses. The city ultimately rejected the proposal after enough concerned citizens contacted their elected officials.

Then on July 1 of last year, a 3 percent pay increase took effect for police officers and firefighters. Another 2.5 percent increase took effect July 1 of this year. The cumulative pay increases from 2008 to 2010 were between 7 percent and 8 percent. Despite mounting deficits, this pay increase was unanimously approved by the City Commission. This latest pay increase was recently rescinded for nonunion employees, again showing that public pressure pushes our officials to take the right steps. Now the question remains as to whether the city will follow suit and hold fast against union demands for wage increases.

By July 1, the 2010-2011 budget was completed and “balanced” mainly on the assumption of future concessions by union groups and state revenue sharing. In reality, much work remains to be done.

Our city is in serious financial trouble. An arbitration award in 2008 increased the generous pension formula multiplier this past August from 2.7 percent to 2.8 percent. This is the wrong message to send taxpayers struggling to make ends meet. Increasing employees’ contributions to their pensions is insufficient. It will not fix the underfunded retirement funds and fails to relieve the taxpayers of the risk of poor market performance.

Protecting the retirement income of current recipients is important. However, adopting a defined contribution, 401(k)-type pension plan for city employees with less than five years seniority will reassure taxpayers that real reform is happening, even if the results will only be realized down the road. It is the right and necessary step to take to create long-term change for future generations.

Health insurance costs are an out-of-control expense. The city pays annual health premiums of $13,098 for each active employee and more than $23,000 for each pre-Medicare retiree, 30 percent to 50 percent more than private sector employers spend. More than 100 city employees who decline health coverage because they receive it elsewhere are paid a biweekly opt out refund of $226.70. The annual cost of $648,362 would have been enough to open city pools this summer.

Several million dollars could be saved annually by adopting a more economical and reasonable health insurance plan, one comparable to those offered by private sector employers. Increasing employee contribution to 20 percent of the premium without adopting a more economical health insurance plan will not stem the city’s downward slide.

Grand Rapids needs a progress report from the city on its transformation that includes:

  • Quotes on the installation cost and administration fee of a defined contribution retirement plan for employees with less than five years’ seniority.

  • In addition to 20 percent contribution to the premium, cost estimates of a more economical and reasonable health insurance plan.

These steps will send a clear message to taxpayers that the city is serious about positioning itself for a financially sustainable future.

Rina Sala-Baker
G.R.A.S.S.root Movement
(Grand Rapids Advocates for Sensible Spending)
Member of city's Board of Zoning Appeals

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