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All Options On Table For County Pension Debt

April 12, 2017
All Options On Table For County Pension Debt

Grand Traverse County commissioners will consider a range of options for addressing the county’s mounting pension debt at a special study session tonight (Wednesday) – scenarios that could include seeking a public millage and using department fund balances to pay off retirement costs.

Commissioners identified solving the county’s pension debt as one of their top priorities at a January 29 strategic study session. The board instructed staff to schedule a study session this spring dedicated to reviewing every possible scenario for tackling the estimated $60-million plus in looming retirement debt. “We need a pension solution,” Commissioner Cheryl Gore Follette said at the strategic meeting. “We need to quit talking about it and get it done.”

A nearly 250-page packet distributed to commissioners ahead of tonight’s meeting reflects staff’s efforts to meet the charge “given us to bring options to the board,” says County Administrator Tom Menzel. Possible action steps were also debated by a citizen-led pension advisory board, which issued a memo of recommendations to commissioners for consideration. The following are some of the key proposals up for debate tonight.

> Increase the county’s amortization schedule: Grand Traverse County is the lowest-funded county in the Municipal Employees’ Retirement System (MERS) – a status that has left the county with almost no “negotiating strength,” according to Menzel. MERS, however, has agreed to extend the county’s amortization (repayment) schedule from 12 to 16 years, lowering and stabilizing the county’s annual payments at $5.85 million for future years. The deal requires the county to kick in an extra one-time payment of $5.6 million on top of this year’s annual payment, resulting in an initial payment of $10.8 million for 2017. Commissioners previously set aside $5.1 million for a one-time pay-down of pension debt, so the county could manage this payment, according to Menzel.

This option is at the top of the list for staff and pension advisory board members. “I believe we have to exercise the amortization schedule,” says Menzel. “I don’t think we have any choice in that. We’ve got to stabilize these annual payments and start investing in our long-term infrastructure.”

> Establish irrevocable trusts for safer investment of county funds: MERS’ offer includes an “escape clause” for the pension provider to change the amortization terms “if the market goes to heck,” according to Menzel – a scenario for which staff plan to be prepared, based on past market swings. Administrators and pension advisory board members are recommending commissioners establish irrevocable trusts in which funds can be set aside for the county to invest in a more conservative manner than MERS’ more “volatile” investment portfolios.

“We would fund (the trusts) as we go along from things like the sale of county properties,” explains Menzel. “The accounts would only be used to pay down pensions…and would give us excess funds to protect us from swings.”

> Use department fund balances to pay down retirement costs: Both the Commission on Aging and Friend of the Court have surplus fund balances that could be used to pay down pension plan costs for employees of those specific departments, according to Menzel. MERS is establishing a separate division for COA retirees, he says, “such that the annual contribution for the COA divisions could come from the millage and not be supplanted with county general fund dollars, as it has been done in the past.”

Friend of the Court has a projected $1.4 million fund balance for 2016 – more than $400,000 over the fund balance it’s required to maintain through a 1996 agreement with the county. Menzel says “reviewing and updating that agreement” could allow the county to “utilize the fund balance to immediately reduce the pension costs associated with members of this division.”

> Go out for a public millage: The pension board recommended pursuing a “dedicated pension millage” as one of the options commissioners should consider to address the debt. The county treasurer estimates a 1-mill assessment would generate approximately $4.5 million per year; based on an average taxable value of residential class homes of $77,900 in 2016, the cost would average $77.90 per year per household. While Menzel says a millage would allow the county “to build up a reserve to pay off the debt sooner than 16 years” and “doesn’t put paying off this obligation on future generations,” he acknowledges it’ll likely be a controversial option that could be a tough pill for the public to swallow.

“(Previous) boards made strategic errors that got us here, there’s no getting around it,” he says. “But it has to be corrected now. We were given the charter to bring all options to the board, so this is one of the options.”

Other scenarios up for discussion at tonight’s study session include bonding to pay off the county’s debt – though that scenario universally lacked support among both administrators and pension board members – and continuing to negotiate with employees to reduce retirement costs going forward. “The only way to lessen the liability is by changing benefits and requiring contributions,” says County Finance Director Jody Lundquist. “And the only true way to resolve it is to fund it: identifying revenue streams or sources that can put additional assets in the plan as quickly as possible.”

Menzel believes staff and pension board members have compiled a range of realistic tools from which commissioners can craft a potential long-term solution to the county’s debt. “We can’t continue the way it is and survive,” he says. “We’re bringing the best solutions we can with the restrictions we’re facing.”
 


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