Pension numbers get weird

UPDATE: Here’s the report, if you want to check it out. Actuarial report 2012

Yesterday the nerds here at Knox beat first heard about a fun little turn of math involving the city budget and the employees pension. There was a $10 million suprise, in the amount of a carryover for the employees pension that went/will go unspent in the 2012-13 budget – which was the assumption when that passed. We’ll try to explain it as simply as possible. And, per usual, toss in a few questions.

What we know:

The Knoxville employees pension is underfunded, and that gap will widen.

Employees contribute to the fund, and the city makes up the difference. In the current system it’s $218 million overall.

In the 2012-13 budget, the city contributed $10 million to the pension on top of its $14.4 million regular payment. Here’s where it get a little weird.

  • The pension expected rate of return is smaller, so that means that the contribution from the city must increase. It’s in the neighborhood of $20 million next year.
  • So that $14.4 in the current fiscal year million is rising to $20 million next year. That money has to come from somewhere, of course.
  • Here’s where it will likely come from: The $10 million was not counted in the actuary’s look at the pension, and instead will carryover to the upcoming, 2013-14 budget, it appears. So that $10 million should covers that funding gap, thereby avoiding a property tax rate increase or more money taken from city reserves.
  • That would take about $6 million out of the $10 million allocated in 2012-13, leaving $4 million in reserve.
  • Through 2014, the city’s pension contribution is expected to grow about $4 million.

Now how ’bout that?

Rather than apply $10 million to the bottom line – the $443 million fund that’s $218 million short – as it appears was the arrangement in the 2012-13 budget that Council passed, that $10 million now seems to have been grabbed back by the administration to be doled out as they wish.

Questions:

Can the mayor do that – go over the head of City Council that approved the $10 million to be spent in the 2012-13 budget – and grab that money back to be spent in the following year instead? UPDATE: Rogero said she didn’t (10/12).

How was this decision made, and who made the call?

Wouldn’t Council have something to say about that? Or is the $10 million now in the hands of the pension board, which the mayor chairs, to be spent as they wish?

If so, now does that money complement the annual city budget and makeup the funding shortfall? Is there a step being skipped here – approval from Council? Is there a precedent set for this kind of thing?

It seems now that the $10 million is static, reserved for use bit-by-bit by the pension board and not thrown in to impact the bottom line.

Publicly, and this is just another issue, the move helps keep an unpopular property tax rate increase from happening in future budgets that would be needed to cover the cost of the annual payment to the city employees pension.

About Gerald

A reporter in Knoxville, TN. Work (mostly) inside and play (mostly) outside. I'm a part of the X or the Y generation. None of us claim the other.
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