Pension tax cost jumps 20%

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Pension tax cost jumps 20%

Scott Learn, OregonLive.com

November 11, 2003

The part of Portland's property tax for police and fire pensions increases sharply with more retirees and costly disabilities.

You wouldn't know it from reading your tax bill, but property taxes to cover pension and disability payments for Portland's police and firefighters jumped by more than 20 percent this year.

In the past decade, a steady increase in pensioners and a sharp rise in disability costs has more than doubled the tax levy for the Fire and Police Disability and Retirement Fund.

This year, a Portland homeowner with a house assessed at $150,000 will pay $394 to support the fund, up from an estimated $318 last year.
The higher tax for the fund, the largest single increase on city tax bills, combines with voter-approved levies for city parks, city children's programs and county libraries to increase this year's property taxes for Portland residents by 9 percent.

Unlike the other taxes, the pension and disability plan's increase isn't transparent to taxpayers. To save space, Multnomah County officials say, it's lumped in with the city of Portland line item on the property tax bills due Nov. 17.

But the spike in taxes for the fund helps explain why bills can rise by near double digits despite statewide tax measures designed to limit property tax growth.

The fire and police fund, created by voters in 1948, is paid for almost entirely by property taxes and is exempt from property tax limits set by 1997's Measure 50.

While base tax rates for cities, school districts and Multnomah County remained unchanged from last year, the rate for the fire and police fund grew 20 percent.

Fund officials and board members say they are sympathetic to taxpayers, particularly given the tough times. The levy growth is projected to slow, with a smaller increase of 11 percent expected next tax year.

Fund officials say their ability to cut costs is limited: The lion's share of the fund's costs -- an estimated 80 percent this fiscal year -- is tied up in pension benefits approved by voters.

The city does not pay Social Security or workers' compensation for police and firefighters, fund supporters note. The fund is separate from the Public Employees Retirement System, which covers most state and local workers. State law requires the city's police and fire pension to be comparable to or better than PERS.

The city auditor's latest report on city services concluded that Portland's per capita spending on police and fire was 9 percent higher than an average of Portland and six comparable cities because of considerably higher pension and disability spending.

Dick Tracy, audit services director, said that analysis takes Portland's lack of Social Security and workers' compensation payments into account.

Pension benefits are expanding in part because the police force has grown, creating more retirees. Because pensions are based on salaries, longevity pay bonuses for police and firefighters approved by the Portland City Council in recent years also are adding to the tab. And voters approved more generous pension benefits in 1989.

The average yearly benefit for members under the old plan is $37,920, fund officials say. The same benefit for the growing number of members retiring under the new plan is $52,224.

Retirement at 50 or 55

Police officers and firefighters can retire at age 50 if they have worked 25 years, or at age 55 otherwise. Pension benefits accrue for as long as 30 years, fairly typical for public safety workers.

Members who retire at age 50 with 25 years of service receive from 55 percent to 70 percent of their base pay each year, depending on the benefit they select for survivors. Members working 30 years receive from 66 percent to 84 percent of base pay, a figure that excludes overtime but includes longevity bonuses.

Changing the formulas to reduce pension benefits would require the council to refer a ballot measure to voters, unlikely given the political clout of the police and fire unions and the damage to police and firefighter morale.

"On the pension side of things, I don't see any discretion there," said Babette Heeftle, the fund's administrator. "It's very much locked in by a formula, and the control factor is wages since it's wage-driven."

Heeftle and members of the fund's newly reconstituted board, restructured in 2000 to reduce the dominance of police and firefighters who benefit from the fund, say the best chances to cut costs lie in the disability area, which composes about 17 percent of costs.

In recent years, disability policies and decisions have stirred up the most controversy around the fund. One example: In 2000, two police sergeants facing possible discipline in an overtime scandal won stress disability claims based on shootings they were involved in during the early 1990s.

Disability costs soaring

Disability costs have soared 80 percent in the past five years, with more firefighters and police officers on long-term disability and an increase in police stress leaves.

Medical costs total about $3 million and are rising quickly. But the larger problem is that the number of members on long-term disability has grown, as has the length of time members are out on disability, Heeftle said.

The fund pays members on long-term disability from 25 percent to 75 percent of their wages, depending on their medical status, their ability to work in another job and whether they actually have outside work.

Efforts to increase "light duty" jobs that allow injured members to return to work have been slow to get off the ground despite years of discussion. The light-duty jobs, financed from the city's general fund, are usually the first ones the police and fire bureaus cut when budgets get lean, Heeftle said.

The fund, legally barred from spending money on disability prevention, is trying to persuade the police and fire bureaus to spend more in that area. But the bureaus have no financial incentives because they gain nothing in their budgets from cost savings in the fund.

Fund administrators also are trying to better parse injury data to spot trends and high-cost areas, though Heeftle acknowledges that the fund "can't give a great answer yet" to how much of the disability costs can be controlled.

Little limit on costs

The fund's voter-approved rules include a property tax cap, but it has little practical effect.

Charles Rosenthal, a retired engineer and one of the fund's new citizen members, said he has looked for opportunities to save big money but has not spotted them. "Looking at it from the inside, I don't see money being thrown around irresponsibly," he said.

Rosenthal said the lack of a meaningful constraint on total costs bothers him.

"At this point, essentially whatever is forecast for the system is what the system gets," he said. "That was something the citizenry voted on and accepted some time ago. It's something that should be reviewed from time to time."

The only ballot initiative being talked about to change the pension system is a potential 2004 measure floated recently by the fire and police unions.

Their measure would improve benefits for survivors, obtain clear authorization for a light-duty pilot program, create a wellness program and allow firefighters eligible for retirement to continue working while having their pension benefits paid into a trust.

The fund is analyzing the potential costs of that measure now. Tom Chamberlain, head of the firefighters union, said he expects it to be cost neutral.

City Auditor Gary Blackmer, who sits on the fund's board, said he expects "some enrichment in there, which translates into extra costs for the public."

Portland Commissioner Randy Leonard, a former firefighter and fund board member, noted that several expensive cases have added to medical costs, including a firefighter who contracted Hepatitis C on the job and a police motorcycle officer hit by a car.

The city has "not done a good job" identifying light-duty positions, he said. And it needs to better pinpoint ways to reduce injuries and stress leave and cut medical costs.

"But in these discussions you also have to think about the impact the discussion itself has on cops and firefighters," Leonard said. "They're thinking, 'We're out here putting our lives on the line, and people are mad at us because when we get hurt, we go to the hospital.' "