Mayor pops over pension ploy

Rybak says 'back-room deal' unfair as city pension debt soars

It isn't often that people who do business with the city describe a mayoral temper tantrum.

That is what the Minneapolis Police Relief Association (MPRA) did in its June 4 board minutes, describing a meeting among Mayor R.T. Rybak and association members, and their legal counsel and lobbyist Brian Rice.

They were discussing proposed changes to the police pension plan.

"The mayor has a very short fuse and raised his voice (more than a little)," according to the minutes.

Later, they said, the mayor "exploded."

Rybak's response? "You bet I exploded. On behalf of the taxpayers of Minneapolis, that is exactly what I should do," he said.

Why is the issue so emotionally charged?

The answer can be found in recently released city financial statements: library referendum- and pension-related costs have more than doubled the debt city property tax payers carry.

The books

In 2002, every man, woman and child owed $222 in property-tax-related city debt. The figure jumped to $526 in 2003, according to the city's 2003 financial report, released July 1.

This isn't what shows up on your next property-tax bill; it's more like the unpaid balance on your home mortgage -- what each Minneapolitan would have to pay to zero out the city's property-tax-backed borrowing.

For now, a Minneapolis family of four owes $2,100 on behalf of the city.

Why the 136 percent debt spike in a single year? Two reasons: the library referendum and pension shortfalls.

In 2003, the city issued $57 million in voter-approved bonds to build the new Downtown Central Library and improve community libraries. It issued a similar amount for pensions: $36 million to cover shortfalls in the Minneapolis Employees Retirement Fund (MERF) and $17.9 million for MPRA obligations.

The library debt will be steadily paid down on a prearranged schedule, but the pension problems will likely get worse before they get better. The city has three funds -- MERF, MPRA and the Minneapolis Firefighters Relief Association -- without enough money to pay pensioners over the long term.

The 2001-02 stock market decline sliced the pension assets needed to pay pensioners, and early retirements forced pension costs up. The result: in 2003, the city borrowed to pay pension debt for the first time.

The city gets some help from the state, but it has to cover most of the shortfalls. City finance staff estimate the city will have to borrow $350 million to fully fix its pension problems.

The blows

The mayoral meltdown came during talks on one potential pension fix.

Rice, a private attorney who has lobbied for years on police pension issues, helped get a bill through the Legislature that extended the city's deadline to fully fund the police pension.

The city's annual payments would shrink -- from $31 million for the police fund next year to $16 million, Rice said. The city would also get more time for the stock market to follow historic trends and rebound -- potentially cutting into the massive long-term borrowing.

However, as part of the deal, MPRA members would get a pension hike and other benefits -- raises some city officials found hard to swallow while the fund is drowning in red ink.

Rice said if the pension fund only agreed to extend the deadline and did nothing else, pension members would get fewer potential bonus checks when good times return.

Rybak said he wants a plan to simultaneously address the three city pension funds -- for police, firefighters and other city employees. He didn't want to fix the problem by "playing back-room politics at the Capitol."

Rice said MPRA tried to talk to city officials; they wouldn't listen.

The fix

Rybak said the city is creating a pension think tank to advise City Hall on pension issues.

Finance Director Pat Born will head the group. Born said the MPRA proposal is "mixed," helping the city's cash flow by lengthening repayment but also hurting it by increasing benefits.

"If we can come up with a package that is better than what MPRA has done, then we want to give it back to the mayor and Council," he said.

The city pension think tank will include financial experts such as Jay Kiedrowski, a former Minneapolis and state finance director who now works for Wells Fargo. It will also include people with political know-how, such as Dee Long, a former Minneapolis state representative and house speaker.

People such as Long are key because any pension fix would require city and state cooperation. State law regulates the pension funds, and changes would require legislation.

Rybak didn't rule out city approval of the police pension bill, but Born said his department will be preparing a set of pension alternatives for the mayor to consider as part of his budget proposal this fall.

Rybak compared the pension problem to an apparently intractable health care problem, wherein the city faced a 20 percent annual premium increase. A labor-management committee overhauled the health care plans and cut a deal.

"I think we demonstrated with the health care issue we can work cooperatively in very tough times and come up with solutions in partnership with our unions," he said.