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BY BOB YOUNG |
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Mayor Vera Katz warned her fellow city commissioners that they were making a "terrible mistake." Her colleagues acknowledged the gravity of the problem. Gretchen Kafoury called it "urgent." Jim Francesconi agreed that Katz's proposal would remedy a "terrible business practice." Yet while the council agreed unanimously last week to spend millions on light rail and affordable housing, they weren't willing to tackle an even bigger project: reducing the $825 million liability of the city's police and fire pension. Katz wants the city to come up with a new plan to reduce that liability. And, with the taxpayer debt growing at nearly $30 million a year, she wants to do it now. But her fellow commissioners made it clear she didn't have the votes. Why? In short, because the unions that represent 1,000 cops and 650 firefighters didn't like the remedy that Katz proposed. The unions' ability to stymie a solution shows just how difficult it is to fix flaws in a pension system that threatens the city's financial stability and causes Portland residents to pay more for police and fire services than citizens in six comparably sized cities do ("The Pension Fund That Ate Portland," WW, March 25, 1998). Pension reform didn't fail for lack of effort. The city's financial gurus came up with a complex but prudent plan several months ago. It called for the city to borrow $825 million, invest the money and bet that the earnings would outpace the interest on the debt, similar to the way the state employees' retirement system works. That way the city could reduce the pension-fund liability over the course of 40 years. There was one hitch, however. Voters would have to agree to tax themselves now so that they'd be freed from the debt later. That meant waging a public education campaign, at an estimated cost of $400,000. Katz wanted to go to voters this November. It appeared that cops and firefighters--who were expected to bankroll the campaign--wanted the same. In June, the police officers union newspaper carried an article headlined "Funding our pension system: more important now than ever." Yet negotiations between the city and the unions bogged down in recent weeks--and then stopped altogether. Simply put, the unions realized the city needed pension reform more than they did. The pension liability is an unsightly blemish on the city's otherwise spotless financial record and jeopardizes Portland's coveted AAA-bond rating. "It is the city's number one financial priority," Katz told WW. Cops and firefighters, on the other hand, are in no hurry to fix the problem. Their retirement pensions are guaranteed by city property taxes--no matter what. In effect, they have a lien on taxpayers' properties. Pension reform, as proposed by Katz, just didn't offer union members enough, says Randy Leonard, a former pension board chairman. "There was absolutely no incentive for members like myself to cough up a couple hundred dollars each for a campaign," says Leonard. A campaign would be risky for firefighters and cops, Leonard adds, because voters might balk at raising their own taxes--even for long-term gain. "When you take a risk, there has to be potential benefits," says Leonard, a former president of the firefighters union. The chief benefit for the unions, city officials argued, is that their members would gain protection against future property-tax limitations such as Measure 47, which might cut into general funds used for police and fire budgets. "But that's asking us to negotiate from a position of fear, and my union doesn't do that," says Leonard. The city could sweeten the deal for the unions in several ways. It could give pension beneficiaries a bigger cut of the potential investment earnings, says Leonard. Also, it could give the unions more control over investment decisions and future tax-levying authority. The city's reluctance to do so was a "major stumbling block," says firefighters' union president Tom Chamberlain. "How could I get my members to support a [reform] that may have a fatal flaw in its financing mechanism?" Chamberlain asks. Finally, it should be noted that both the police and firefighters unions will start negotiating new contracts soon. No doubt, the city could offer increases in wages, benefits and staffing levels that might make pension reform easier to swallow. Publicly, two reasons were cited for pulling the plug on a 1998 solution: According to police officers union president Leo Painton, there wasn't enough time to prepare a campaign for this fall and the proposed remedy would compete with a handful of other expensive measures on the November ballot. City commissioners agreed. But their logic is suspect. There's no reason to believe the ballot will be any less crowded in the year 2000. "I think the ballot will be about the same, maybe worse," says Katz. November 2000 presents other challenges. It's a mayoral election year, and it's hard to imagine candidates--Katz, Charlie Hales or anyone else--embracing a platform that calls for raising taxes. Furthermore, it's a presidential election year, which means high turnout, and high turnout usually spells trouble for money measures because infrequent voters find it easy to just say "no." Finally, some question the argument that there isn't enough time to launch an adequate campaign for a November election. None of the other ballot measure campaigns--such as Francesconi's bid to get $64 million for parks--has begun yet; campaigners don't usually start reaching voters until after Labor Day. Some City Hall watchers say there's a simple--if not necessarily noble--explanation for the council's inaction. "Doing nothing is a decision," concludes City Auditor Barbara Clark. "It has its political advantages--and it has economic disadvantages."
originally published August 5, 1998 |
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