Taxpayers’ burden lifted as pensions merger finally approved

I’m very pleased to report that a major burden has finally been lifted from Minneapolis taxpayers. Yesterday, the merger of two closed pension funds that have been responsible for skyrocketing costs to taxpayers — the Minneapolis Police Relief Association (MPRA) and the Minneapolis Fire Relief Association (MFRA) — was approved by the State’s Public Employees Retirement Association (PERA). This approval was the last step required for the merger to become complete on December 31.

The final merger of these closed pensions puts an end to a broken system that had been responsible for huge tax increases on Minneapolis taxpayers in recent years. With this merger, taxpayers will avoid another $20 million increase for 2012 and other large increases in the future. Instead, the merger, together with additional cuts in city spending, has enabled me to propose no property-tax increase for next year.

(And remember that the pension funds were the principal cause of the property-tax increase in 2011: had it not been for our legal obligations to the closed pensions under the broken system, we would have been able to lower property taxes this year as well.)

End of a long journey, and of a broken system

This merger is the end of a long and expensive journey for Minneapolis taxpayers. Shortly after I first became Mayor, I became aware of the ticking time bomb that was this broken system. The City doesn’t control these funds and past mayors and City Council members pursued reform for years, to no avail. Then in 2004, the State Auditor alerted the City that these two funds were routinely overcalculating their own benefits and overcharging taxpayers for them. After the funds refused to stop doing so, the City took them to court on taxpayers’ behalf. The court sided with taxpayers several times and ruled that the funds had overcharged Minneapolis taxpayers at least $52 million in the past decade.

The old, broken system served almost no one well: it maximized risk and volatility for both pensioners and taxpayers. (There is just one group for whom the broken system worked very well: the funds’ well-paid lobbyists and lawyers who made a lot of money trying to defend it.)

Yet while we were winning in court, the only permanent solution for ending the broken system was a merger of the funds with the State’s professionally-run PERA system. We accomplished the merger in July when Governor Dayton and the Legislature passed a bill that authorized it, following an agreement that we reached with the funds. To have gotten any merger approved through the Legislature is a historic achievement. To have done it through a Legislature that was hostile to Minneapolis on many other fronts borders on amazing. 

Compromise

That said, the merger that we won was a compromise: it was not everything that taxpayers deserved. It was a good deal for pensioners: police pensioners will get a 43% increase in their benefits in just four years, while fire pensioners will see a 50% increase. By any stretch of the imagination, this is a good deal for them, which is why over 90% of the members of those funds voted to approve the merger (even though incredibly, some in the funds tried to argue against it, saying that the increase was not big enough).

But even though the merger is a compromise, it’s still a better deal for taxpayers than the status quo. That’s because it’s like getting out from under the worst, most variable and highest-interest mortgage possible and refinancing it into a fixed, predictable, low-interest mortgage. And that prevents additional impacts to our taxpayers, next year and into the future.

Thank you

Many people deserve thanks for their years of hard work on taxpayers’ behalf to fix this broken system. While I can’t list them all, I want to mention City Council Members Betsy Hodges, Elizabeth Glidden, Barbara Johnson, and former Council Member Paul Ostrow; City Attorney Susan Segal, Deputy City Attorney Peter Ginder and their staff; Budget Director Heather Johnston, Finance Director Kevin Carpenter, former Finance Director Pat Born and their staff; Intergovernmental Relations Director Gene Ranieri and his staff, Communications Director Sara Dietrich and her staff. The entire City Council, many Minneapolis legislators and Governor Dayton were very supportive of our efforts. I’m also very grateful for the many years that Peter Wagenius of my staff has put into solving this problem.

Most of all, though, I want to thank Minneapolis taxpayers. You have lived with this burden for a long time and I am very pleased that it is finally over.

 

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