PARKERSBURG, W.Va. — City officials are putting additional money toward police and fire pension obligations this year in hopes of making the funds more solvent.
The city is required by state code to increase its contribution by 7 percent each year. However, Parkersburg Finance Director Ashley Flowers said the plan this year is to allocate nearly $200,000 from a larger-than-predicted cash carryover to raise the police pension contribution from the general fund by an additional 10 percent and fire pension amount by another 5 percent.
“Instead of just finding things to spend that on, we really wanted to address a future issue,” Flowers said.
The city is required by state law to pay 107 percent of the previous year’s contribution into its fire and police pension funds each year. For fiscal 2015, those amounts are $2,096,853 for fire and $950,885 for police, Flowers said.
Combined, those payments represent more than 11 percent of the city’s $26 million budget. In 10 years, the required payments will be approximately $4.13 million for fire and $1.87 million for police, Flowers said.
If only the mandated amount is put in, by 2032, the fire pension requirement would be more than $7 million. By 2048, the police pension payment would have to be nearly $9.5 million, Flowers said.
“At the rate it’s set up now, we won’t keep up with the rising costs,” Parkersburg Mayor Bob Newell said.
Parkersburg’s police and fire pensions were each a little under 21 percent funded as of July 1, 2013, the most recent date for which figures were available, said Blair Taylor, executive director of the state Municipal Pension Oversight Board.
Full funding means the ability to pay all obligations to current employees and retirees. While that’s probably not a realistic scenario, catastrophic events could put much greater pressure on the funds, Taylor said. The Government Accounting Standards Board recommends pensions be at least 80 percent funded.
Parkersburg isn’t alone in this situation. In fact, Newell said, “we’re in much better shape than many, many cities.”
In the late ’80s and early ’90s, municipalities facing decreasing revenues and increasing costs lobbied the West Virginia Legislature for a different means of funding pensions, Taylor said. The alternative methodology introduced by a 1991 bill allowed municipalities to pay for pension funds starting with an average of their previous five years’ annual payments, then increasing by 7 percent each year after.
But that did not provide enough funds for cities to keep up with the growing pension liabilities as new employees came into the systems. Cities like Parkersburg, which opted for the alternative method, are locked in to the 7-percent-a-year increases until they reach the 80 percent threshold or close their existing funds to new hires and put those individuals under a state-run system.
Both Newell and Flowers agreed it is better to keep the pensions under the auspices of local boards.
“It really gives you more control and more internal oversight,” Flowers said.
The allocations of the additional funds were approved last week by City Council’s Finance Committee and should come before the full council for approval next week. The move would not only add that much to the pension funds but allow the city to earn interest on the additional funds, Flowers said.
Taylor noted the city will not be penalized for making excess contributions. The required amounts for fiscal 2016 will be based on 107 percent of this year’s requirements, not the amount actually paid, he said.
“If they’re thinking about paying more than the 107 percent, that’s great,” Taylor said. “The unfunded liability is decreased, and they have that extra money to (earn interest).”
A change in state law means the city is also receiving higher pension contributions from police officers and firefighters hired in 2010 and after than those in the departments before, Newell said.