Despite unanimous opposition, City Council fulfilled duties dictated by the City Charter and voted to allow a controversial pension amendment to appear on the ballot this November.
Vice Mayor Roxanne Qualls explained that all council members oppose the amendment, but it’s part of City Council’s ministerial duties to allow ballot initiatives if petitioners gather enough signatures to put the issue to a public vote. The Hamilton County Board of Elections announced on Aug. 12 that petitioners had gathered enough signatures to clear the 7,443 requirement.
The amendment would privatize Cincinnati’s pension system so future city employees — excluding police and fire personnel, who are under a separate system — contribute to and manage individual 401k-style accounts. Currently, the city pools pension contributions and manages the investments through an independent board.
City officials oppose the amendment. They say it will cost the city more and hurt retirement gains for city employees.
One new concern: As written, the amendment could force the Internal Revenue Service (IRS) to revoke tax-exempt status for city employees’ retirement plans.
Supporters of the amendment, including out-of-state tea party groups, argue it’s necessary to address Cincinnati’s present and future pension liabilities, which currently stand at $862 million.
The current liability is a result of two issues: City Council has underfunded the pension system by varying degrees since at least 2003, and economic downturns have hurt investments in the city’s pension system.
That outstanding liability was one of the factors that led Moody’s, a credit ratings agency, to downgrade Cincinnati’s bond rating on July 15.
City officials say they’ve already taken steps to resolve future costs and the only remaining concern is how to pay for the current liability. In 2011, City Council raised the retirement age and reduced pension benefits for city employees and retirees.
“This council adopted some of the most sweeping changes to any public pension system in the country for current and future employees,” Qualls said.
Councilman Chris Smitherman clarified he doesn’t support the proposed amendment, but he says City Council has done a poor job with the current pension system.
“My recommendation to this council is to put forth a solution to solve the problem,” Smitherman said. “You can’t have your cake and eat it too. You can’t say, ‘This is bad,’ and then underfund the pension.”
Tilsley says the pension board will make recommendations to City Council within a month to address the current pension liability. The board estimates the changes would keep the system 100 percent funded after 30 years.
CityBeat covered the amendment and the groups that might be behind it in further detail here.
Updated (2:17 p.m.): Updated to reflect the full City Council vote.