Sales tax for police and fire pension leaves future undecided

Last month, the City Council considered replacing Springfield’s 3/4 cent police and fire pension sales tax with something else.

The pension sales tax has funded the Police and Firefighter Retirement System since it was first approved by voters in 2009. After two five-year renewals, the tax is scheduled to be repealed on March 31, 2025, and pension fund boards will be required to ensure that pension plans have the funds needed to pay promised benefits. We are considering the best way to ensure that you receive it.

As of July 30, the pension fund held 90.7% of the assets needed to pay accumulated benefits, according to the latest actuarial valuation report. Given the amount of revenue the sales tax brings in (approximately $45 million annually), renewing the existing tax for another five years could generate far more revenue than is needed to bring the fund to 100% . It’s possible the plan will reach full funding before the 2025 tax deadline, but actuarial consultants at Milliman who submitted their findings to the pension committee on Oct. 12 said that was unlikely. Stated.

The sales tax-funded pension system closed to new hires in 2006, and new police officers and firefighters were replaced by the state’s LAGERS retirement system. In addition to sales tax revenue, the city contributes 35% of eligible employees’ salaries (approximately $5.4 million annually) from the city’s general fund.

“Other than tax revenue, all of our contributions are salary-based, and our salaries won’t last very long,” said Ryan Falls, an actuary at Milliman who published the study. He pointed out the implications of the closed nature of The number of active employees covered by the plan is shrinking as more people retire and begin collecting benefits.

What will happen to pension funds and taxes next?

At Springfield City Council’s Sept. 29 training camp, City Manager Jason Gage announced a new three-quarter cent tax that is pending voter approval and could replace the current police and fire pension sales tax that is set to expire. announced recommendations regarding sales tax. He said the tax would provide useful funding for a variety of needed infrastructure and programs without raising tax rates above current levels. At the meeting, council members were divided on how the language on the ballot should be read and where tax dollars should be spent.

Filling the pension system’s remaining shortfall was one of several uses for the new sales tax proposed by Gage. If it decides to include pension plans as one of the beneficiaries of the proposed tax, the exact amount to be put into the fund each year would need to be determined by Congress.

Falls said that while it may be helpful to set annual funding at a fixed amount, there should be more flexibility in the amount paid into the fund each year.

“We recommend considering having actuarially determined contributions, which can change slightly from year to year, making budgeting and planning difficult,” he said. “But if you’re charging yourself something like a fixed-dollar contribution and something happens somehow, it can push you in a different direction than your goal.”

This actuarially determined contribution amount can vary from year to year based on investment returns and the actual cost of providing benefits to retirees. Since 2009, sales tax revenue alone has exceeded this amount each year, so contributing annually is not a problem. However, as consumption tax abolition approaches, annual contributions will play a more important role. The ability to flexibly adjust annual payments in response to any changes could help the city meet required policy contributions to the fund and stay on track to achieve its goals. Funding will be completed by 2030.

Gage said if sales taxes do not fund the fund, they will be budgeted through the general fund. No matter where the funding comes from, the goal remains 100% funding, he said.

Gage said the City Council agreed to seek a new sales tax that, if approved by voters, could reallocate that revenue annually to respond to unforeseen market changes. .

“We believe that retirement financing must be flexible, regardless of the source of income,” he said. “So if we need to put in a little more effort in the year to keep our trajectory in the right direction, we can do that.”

A new approach to responsibility

Following the presentation, the pension board approved a “phased” approach to repay the remaining debt in case the fund is not fully funded by the sales tax deadline.

This shortfall, known as the unfunded actuarial liability, is due to retirement benefit costs exceeding plan assets. Currently, the difference between the actuarial value of the pension fund’s assets and its expected liability is approximately $65.5 million.

Both sides of the equation can change unexpectedly. Changes in expected life expectancy or higher-than-expected salary increases can drive up future costs, while increases or decreases in investment income or sales tax revenue affect wealth. Falls said changes in the market value of pension investments could be a source of volatility as the fund approaches full funding.

Under a multi-tiered approach approved by the Board, the Pension Board’s actuaries will each year calculate the amount the plan will need to achieve full funding by 2030, but as a way to address pension volatility. , spreading the cost of unplanned changes over 10 years. You can contribute to the market and avoid having to make a large contribution in one year and a small contribution in another. Each year, a new 10-year payment plan is created to accommodate the new changes, adding a “layer” on top of the original plan and applying it over a 10-year period.

“From a board standpoint, all we need to do is make sure that our goal remains at 100% fundraising and that the donations get there,” the executive director hired by the board said. said retired firefighter Tony Kelly. The retirement benefit system will begin this year.

Board chairman Andy Stewart said much will depend on what happens to tax and investment income as the tax deadline approaches, and he hopes to reach 100% by 2025.

“I don’t think the board has any other way to raise revenue other than taxes,” he said, insisting on a “wait-and-see” approach for now. He said the board has discussed future “ballpark” funding possibilities with the City Finance Department.

“I want you to know that as citizens, we value the people who take care of us,” Stewart said.

more:As the pension sales tax expires, the City Council is considering imposing a new tax on voters.

The last active member of the plan is expected to retire in 2030. If this happens, it will open up many new options for the future of the retirement system, but little has been discussed and nothing is set in stone, Stewart said.

It also remains to be determined whether the alternative sales tax will be paid to voters and what its ballot language will be. The City Council failed to reach an agreement on a potential replacement for the 3/4 cent sales tax during its September recess. City spokeswoman Cora Scott said a Committee of the Whole meeting has not yet been scheduled for council members to review the topic.

Gage noted that his recommendations on reinstating the sales tax and the funding categories it could cover will not change before the meeting because further input from the Legislature is needed.

Furthermore, it is unclear whether alternative taxes will be accepted or opposed by the public. Following Mr. Gage’s proposal in September, former Mayors Jim O’Neill and Bob Stevens, who were both serving on the City Council when the original pension tax was proposed in 2009, He wrote a strongly worded editorial noting that city council members at the time had vowed to allow the sale. Taxes expire when the pension liability is paid.

“The promise we made to the people at the polls in 2009 was that as soon as the pension system was fully funded, the taxes would end immediately,” they wrote. “There’s no ifs, ands, and buts. There’s no smoke and mirrors. There’s no bait and switch.”

Marta Miese covers local government for the newsreader. For tips, contact mmieze@news-leader.com.

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Sales tax for police and fire pension leaves future undecided

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