Minnesota cities feel burden of pension increasesCities and counties across Minnesota are feeling the pinch as they try to cover mandated increases in public pension funds.
By: Associated Press,
ST. PAUL, Minn. — Cities and counties across Minnesota are feeling the pinch as they try to cover mandated increases in public pension funds.
The St. Paul Pioneer Press reported (http://bit.ly/1ajZWiR ) that the rise in pension costs has played a role in cities' decisions to cut staff, reduce services or even raise property taxes. Some public employees are covering more of the pension costs themselves.
"These are real burdens," said Mark Haveman, executive director of the Minnesota Center for Fiscal Excellence. "There is a crowding out of services that is going to continue into the future."
Staffing costs, including salaries and benefits, are local governments' biggest expenses. While many municipalities can find ways to reduce costs of health care or other benefits, pension costs are out of their control: The contribution rate is set by the Legislature, and local governments must pay.
The Legislature has approved several rate hikes for the two primary plans under the Public Employees Retirement Association that have led to incremental increases in one or both plans during the past 12 years. In May, the Legislature approved another pension package with rate hikes in the police and fire fund in 2014 and 2015.
To illustrate the budget crunch: Just over a decade ago, the city of St. Paul paid an average of about $5,000 toward each police officer's and firefighter's pension. Last year, the city paid nearly $11,000.
"There's no question that public employers don't welcome the increases in these costs," said Keith Carlson, executive director of the Metropolitan Inter-County Association.
But local government officials also realize the increases are necessary to ensure the public pensions are sustainable. The past few years have been hard because in addition to contribution rate increases, cities and counties are also facing reduced revenue, including less state aid. Todd Hurley, St. Paul's finance director, said closing the budget gap is "getting tougher each year."
Hurley said the city has reduced hours at public libraries, leased the city's recreation centers, cut staff and raised some property taxes. Until now, public safety has been spared, but that might change this year, Hurley said.
"There are real-world implications to these kinds of rate changes," said Joe Campbell, a spokesman for Mayor Chris Coleman.
Smaller cities also feel the pinch. Pension costs for the city of Mounds View have gone from roughly $1,100 per person to more than $3,200 in the last decade. Mounds View City Administrator Jim Ericson said the city has absorbed rising costs and revenue decreases through cuts, including layoffs.
"It's a challenging time when the revenues simply aren't there to continue to provide the same levels of services that, as a resident, you'd expect to continue to receive," Ericson said.
Carlson said the only way local governments can control their pension costs is through either reducing staff or limiting salary increases.
"We're getting greater productivity from our employees — just like in the private sector — and that is causing issues in terms of stressful working environments, but we respond to the economic times similar to what private businesses are doing," Carlson said.
Copyright 2013, the Associated Press.