Funding employee retirement benefits will bankrupt the City of Baltimore if left unchecked. Since 2000, contributions to city retirement funds have risen from 1 percent of the budget to 4.4 percent. In absolute terms contributions have risen from $25 million in 2000 to an estimated $118 million for 2008.
So next time residents complain the schools don?t receive enough money or that no staff run recreation centers, the reason is clear.
Stabilizing cost-of-living benefits ? a proposal floated by the city ? is not enough, by a long shot, to curtail skyrocketing costs. Currently city employees enjoy a 1 percent guaranteed cost-of-living increase and a 1 to 5 percent increase if the city?s pension funds outperform expectations. The proposal would give retirees a guaranteed 1.5 percent cost of living increase in their benefits, but would limit other benefit hikes to inflation.
Raymond Wacks, the city?s budget director, said, “We want to guarantee a fair benefit.” But he added that doing so “no doubt will put pressure on us,” and that “if the city can?t afford to pay it, there will be no benefit.”
Thankfully someone in the city understands the consequences of maintaining the current benefit structure.
But understanding is only the first step to remedying the problem. The city must take swift action to structurally change the benefit program for city employees, starting by replacing the bountiful defined benefit program with a defined contribution plan.
Only 20 percent of private sector employees enjoy guaranteed life-long benefits as do city employees. The other 80 percent must retire with funds saved through 401(k)s and personal discipline during working years. That figure is only poised to grow as companies continue to shed plans they cannot afford. Unlike government, businesses cannot raise taxes to fund poor choices.
And with Baltimore continuing to shed residents, as a recent U.S. Census report shows, fewer people will support a burgeoning retiree population.
What is clear is that unless the city makes drastic cuts to retiree benefits, tax hikes or major cuts to other vital city programs ? or both ? are inevitable. That may not be fair to city employees. But don?t taxpayers deserve fair policies too? Mayor Sheila Dixon must show moral courage and fight for a plan that all of the city?s residents can afford. Otherwise city residents will become government serfs, funding lavish retirements for city employees that they will never enjoy.
