Many local governments facing severe fiscal problems
(Reuters) — Pharmacist Michael Nastro is full of admiration for how police responded to a deadly robbery in his suburban New York neighborhood in 2011.
A gunman walked into a pharmacy near his own on Long Island, killed four people and fled with a stash of painkillers. Police in the area, which is part of wealthy Suffolk County, best known for the exclusive Hamptons beach towns, boosted patrols and gave advice on what to do if the robber hit again. They caught him three days after the shooting.
But Nastro, 50, admits he's torn about police officers' pay and retirement benefits. "I'd be lying to you if I said I wasn't conflicted," he said. "I want good police work, but I'm a taxpayer too. There's got to be a middle ground."
The average annual pension for Suffolk County cops who have retired since 2007 was $86,702, according to figures from the Manhattan Institute, a public policy think tank, against $37,270 for other county employees, excluding teachers. The county, facing a three-year deficit of $530 million, declared a fiscal emergency in March.
Traditionally, United States voters have backed generous pay and benefits for the cops and firefighters willing to risk their lives to keep citizens safe. That was especially so after the deaths of many emergency workers in the Sept. 11, 2001, attack on the World Trade Center in New York.
But as economic conditions have worsened and many local governments have run into severe fiscal problems, that attitude has started to change. Since the 2007 recession, some cities have tried to roll back pension benefits and pay, among the most rigid and, in some cases, highest expenses in municipal budgets.
From New York to California and points in between, cops and firefighters have been drawn into pitched battles over their pay and benefits.
In San Diego and San Jose, California's second and third biggest cities, voters in June overwhelmingly backed sweeping pension reforms. In San Jose, all employees will have to choose between reduced benefits or higher retirement contributions.
In the mid-sized California cities of Stockton and San Bernardino, officials say public safety costs were among the factors that forced both to declare bankruptcy. In Vallejo, a former U.S. Navy town near San Francisco that emerged from a three-year bankruptcy last year, public safety pay and benefits were consuming three-quarters of the city's general fund.
Detroit, plagued with one of the highest crime rates in the country, nonetheless cut pay and health-care benefits for city workers, including police, by 10 per cent just over one week ago, a move the mayor says will save the cash-strapped city $102 million per year.
A legal challenge by the Detroit Police Officers Association failed, even as union president Joe Duncan publicly complained of what the cuts would mean for Detroit's ability to hire police, noting the city is "already 50th on the list of pay for the biggest 50 cities in the United States."
St. Louis this month approved an overhaul of the firefighter retirement system that rolls back decades of increases, while Miami officials trying to plug a $60 million budget gap this week declared "financial urgency," which will let them alter employee contracts. Among the city's proposals: Limit overtime for firefighters and require higher health-care contributions.
According to an analysis by New York-area newspaper Newsday published last month, police and sheriff's department employees in Nassau and Suffolk counties reached nearly two-thirds of each county's payroll.
"That is why a lot of municipalities are choosing bankruptcy, because it's the only way — other than getting a state control board — of getting out of these salary and pension requirements,'' said the former top official of Suffolk County, Steve Levy.
Savings and safety
Striking the right balance between savings and safety is a touchy business, though. While it's become almost routine for voters to rail against fat paychecks and generous benefits for teachers, transit workers and other public employees, cops and firefighters have in the past been largely spared such anger.
For example, in Wisconsin, where most public workers were stripped of their collective bargaining rights and made to pay more to fund their pensions, firefighters, cops and other public safety workers were given an exemption.
Still, Jim Carver, president of the Nassau County Police Benevolent Association, says politicians have started to target cops and firefighters. The state seized control of Nassau County's finances after the county failed to balance its budget and had its credit rating cut last year.
Carver bristles at the notion that police and firefighters don't deserve what they earn.
"After 9/11, you couldn't find a politician that wasn't rushing to put his arms around a cop or a firefighter," he said. "Ten, 12 years later, we are to blame for everything. Politicians have made us the enemy. We didn't put a gun to anybody's head. These were fairly negotiated contracts."
To be sure, it took decades of bad decisions and poor management by local authorities to put many communities in fiscal dire straits. In countless cases, cities, counties and states over-promised benefits to retirees but neglected to set aside sufficient reserves to cover their liabilities.
When the economy and stock market were booming, cities often sweetened pension benefits, confident the money would be there in the end. After 9/11, the cops and firefighters' heroic status with the public meant they were in a particularly strong bargaining position.
But the 2007-2008 recession and the impact of the housing bust on real estate taxes hammered municipal revenues and badly hurt pension funds' investment returns.
The Pew Center on the States said the gap between states' pension promises and liabilities was $757 billion in 2010.
"Everybody's complicit in this,'' said Lawrence Levy, executive dean of the National Center on Suburban Studies at Hofstra University.
Noel DiGerolamo, head of the Patrolmen's Benevolent Association in Suffolk County, has harsh words for the public officials, saying they should be bearing the blame for fiscal woes.
"Rather than being responsible leaders of government and saying, 'We have these pension obligations that we're going to have to pay,' and saving towards those obligations, they are being politicians," DiGerolamo said. "And when the bill comes due, blaming employees who have worked towards and earned these pensions for 20 or 25 years."
Broke in California
Of course, scores of municipalities are managing to balance their budgets even as costs rise. Only a few of the 90,000 issuers in the municipal debt market are in true distress.
Even many with escalating pension costs can meet their current obligations. It's keeping up with promises to aging citizens who are living longer that keeps officials up at night.
In some cases, contracts that may once have seemed fair are helping to bankrupt cities and leading to severe cuts in services, including fire station closures and reductions in police forces. Eight municipalities have sought protection from their creditors so far this year, following 13 that filed in 2011, and many others are having to slash their budgets.
San Bernardino, a city of 210,000 some 65 miles east of Los Angeles that has been hit hard by the collapse of the housing market, says public safety spending eats up 73 per cent of its general fund budget, with overtime for firefighters especially onerous. Pension costs are expected to reach $25 million this year, double the 2006 level.
The city imposed a temporary 10 per cent pay cut, but the firefighters' union successfully challenged it in court and is entitled to back pay. The city council voted last week to suspend debt payments and quit paying into a retiree health fund.
Some 350 miles to the north, Stockton, the biggest U.S. city ever to file for bankruptcy, allows police officers to retire at 50 with pensions based on three per cent of final pay for each year in service.
When he signed the bankruptcy filing in June, Stockton city manager Bob Deis said a 1996 decision to provide firefighters with free health care in retirement, later expanded to all city employees, was a "Ponzi scheme" that saddled the city with a $417 million liability.
Because their jobs are dangerous and physically taxing, cops and firefighters typically retire after 20 or 30 years on the job, and that's as it should be, said Michael Coleman, a policy adviser for the League of California Cities, an association of municipal officials from the state.
But that's why it's important to keep pensions reasonable.
"I don't think anyone disagrees that these are dangerous jobs. But how much is enough? Unfortunately, I think it's gone too far," Coleman said.
The contrast between benefits in the public and private sectors is stark.
Only 26 per cent of U.S. companies offer retiree health-care benefits, compared with 66 per cent that did so in 1988, according to the Kaiser Family Foundation.
Most private sector employees bear the brunt of providing for their retirement by saving money in funds known as 401(k) plans, with companies typically also making contributions. After the 2007 recession, some firms stopped making contributions altogether.
It can all add to tensions as some taxpayers question why their services are being cut or property taxes raised so a city or county can find the money for generous retirement benefits.
In New York, a 2010 investigation by then-attorney general Andrew Cuomo, now governor, found widespread incidence of "pension padding" — public employees working extra overtime in their last year on the job to boost pay and retirement income.
That's especially costly when it comes to well-paid public safety workers. The Manhattan Institute estimates nearly 10 per cent of New York State cops and firefighters who retired in 2011 will receive six-figure pensions, from two per cent in 2001.
No quick fixes
Quick fixes, however, are unlikely. Efforts to revamp public pension plans face stiff legal challenges. Each state has its own constitution, courts and case law that affect how it can go about changing retirement systems.
Firefighters in San Bernardino have filed seven legal actions against attempts to scale back pay and benefits since 2007.
In many municipalities, public salaries and pensions are pegged to those offered in comparably sized regional cities. In New York, pensions, once set by the state, cannot be negotiated through collective bargaining.
At the same time, alternative ways to tackle deficits, such as raising taxes, are politically unpopular. In the small Southern California city of Stanton, voters recently rejected a proposed utility tax hike that would have raised $1.1 million. The city instead cut back on active police and fire staff, which account for 77 per cent of its spending.
"Will there be some impact on response time? There could be," said city manager Carol Jacobs. "But this city is not going to go bankrupt."
In some cases, unions have preferred layoffs to reduced retirement benefits. Two troubled cities in New Jersey are cases in point. Camden, one of the state's poorest and most crime-plagued cities, recently cut its police force by about one-half, and Newark cut its force by one-third after unions declined concessions demanded by their city governments.
In New York, former Nassau county executive Thomas Suozzi, a Long Island Democrat who has clashed with police unions, gave a stark assessment. "We're facing a problem that will be faced by every town in America.
"You can't raise property taxes anymore —- people won't go for it. There's no more money. So, do you cut services, which will result in the death of the suburbs, I think, or do you make these salaries and pensions more rational than they've been?"