Madeline Rogero has accomplished a lot during her first year as mayor of Knoxville, but when asked what she considers most significant, she’s quick to single out her overhaul of the city’s pension plan.
When Rogero took office last December, a previously appointed task force had already concluded that the city’s existing plan was unsustainable. Retiree benefits far exceeded contributions, and the plan’s liabilities were approaching $200 million in excess of its assets—a shortfall that was tantamount to city debt that would have to be paid off. But the task force left it up to the new mayor to come up with a solution.
Because state law (actually a State Supreme Court decision) precludes reducing benefits that have been promised to existing employees and retirees, the only thing Rogero could do to stop the bleeding was to close the plan to new entrants. She then worked with City Council to fashion a plan for future city employees that combined defined benefits on the first $40,000 of their earnings with a 401(k)-like matching of their contributions on amounts in excess of that. Benefits under the new hybrid plan were significantly reduced from the old one, but Rogero managed to gain the acceptance of city employee organizations and ultimately city voters who approved the revisions in a November referendum.
“We walked in facing a big problem, and we were able to come up with what I think is a very good solution,” Rogero says. “It’s a hybrid plan that recognizes the risk that police and firefighters face every day. So we combine to share some risk, but employees are taking on much more risk and that will save us money.”
However, these savings won’t be realized for many years. In the meantime, Rogero faces the daunting prospect of having to cover the unfunded liability in the existing employee/retiree plan that’s grown to $218 million at last report. And this could be her biggest challenge of the year ahead.
An actuarially based schedule calls for city contributions to the plan to rise from $14.4 million in the current fiscal year to $20 million in fiscal year 2013-14 and thence by about $2 million a year more to $32 million in 2019. Because there is very little near-term revenue growth in prospect for the city’s $180 million operating budget, it’s been hard for me to imagine how next year’s $5.6 million spike in pension funding could be covered without resort to a tax increase.
But Rogero seems determined to avoid one. In her budget for the current fiscal year, she made what she characterized as a “$10 million allocation from the city’s fund balance to pay down on the unfunded pension liability.” Now, the mayor is eyeing that money to go toward what the city must pay up in the years immediately ahead.
“What we believe we are going to do uses that to cover additional city contributions for, say, the next three years,” Rogero says. “I’m not committing to that yet, but we’re hoping to pay for that liability without having to do a tax increase,” she adds.
One problem with this approach is that it seemingly runs afoul of the budgetary precept against using one-time money (i.e. fund balance) to cover recurring expenses, and the pension payments are most certainly recurring. Indeed, over three years as projected above, the additional outlay will total more than $20 million and keep on going up. And while the city’s fund balance was once a robust $70 million, after drawing down $10 million for pensions and another $4 million for economic development support, there’s not much room left for tapping it still further at a time of great economic uncertainty.
Rogero comes close to acknowledging that she’s just postponing the inevitable when she allows that, “As we’re coming out of a recession, the longer we can put off a tax increase the better in order to give businesses and individuals a better chance at full recovery.” Already, the city has gone for eight years without one—the longest stretch in memory.
Ironically, Rogero’s pronouncements came just as the venerable Brookings Institution released a study purporting to show that Knoxville is one of only three cities in the country to have achieved full recovery from the recession. While the mayor says she “wouldn’t go that far,” she has “a sense that we’re doing really well in terms of attracting all of the retailers that are moving in—Publix. Costco, Trader Joe’s, Tupelo Honey, Urban Outfitters, Anthropologie. These are all companies that have the market research down, and they see opportunity here.”
Other highlights of Rogero’s first year in office, categorized as she did in enunciating four themes for her administration in her budget address last spring:
• Strong Safe Neighborhoods: More emphasis on addressing vacant and blighted properties through proactive codes enforcement and, when all else fails, through acquisition and placement in the city’s Homemaker Program for resale. There are currently 22 parcels listed for sale to purchasers who must commit to build or rehabilitate a residences on them within a year.
• Living Green and Working Green: Funding the Office of Sustainability whose manager, Susanna Sutherland, is now spearheading the city’s application for a $5 million grant from Bloomberg Philanthropies for creation of an innovative Urban Food Corridor. The office has also overseen the installation of 24 electric vehicle charging stations at nine locations in the city.
• An Energized Downtown: A $6.1 million (250 space) addition to the State Street Garage and $2.5 million for acquisition of the site on which TVA is committed to building an 800- to 1,000-space garage to provide parking for prospective tenants to its own and adjacent vacant office buildings.
She is also proud of having shepherded through an extension of the city’s nondiscrimination ordinance to cover sexual orientation and gender identity.
Overarching these and many other specifics is the caliber of Rogero’s management team in general. It starts with her two chief deputies: Eddie Mannis, who had been CEO of Prestige Cleaners, and Bill Lyons, who is a holdover from the Haslam administration. City government is in good hands.
Addendum: The Office of Sustainability actually predates the Rogero administration, but at that time it was funded by federal stimulus money. When that funding ran out, Rogero decided to make it a full city funded office.