Fire Sale

Police officers and firefighters say Initiative 790 will give them much needed control over their own retirement money. In the wake of the Enron scandal and vaporizing pension funds around the country, one is immediately sympathetic. State and local elected officials say I-790 will cost $1.3 billion in the 2003-05 state-budget biennium. Since budget writers are already grappling with a $2 billion deficit for next year, that news is alarming. So who is right?

You can hear the frustration in Kelly Fox's voice. As president of the Washington State Council of Firefighters, he has spent many hours lobbying the Legislature, trying to get it to address the problems in the pension funds that serve more than 13,000 of Washington's public-safety employees. Washington's police officers and firefighters are not eligible for Social Security—they rely solely on a state pension. Fox says the system is terribly inadequate: It doesn't pay anything for disability, it doesn't pay any health insurance, and the cash benefits are too small. "I've been with the Olympia Fire Department for 20 years," says Fox. "If something happened to me today, my pension would be $890 a month. I couldn't even pay for my family's health insurance."

Fox says the solution is simple: Put public-safety workers in charge of their own pensions. As it stands, a group of legislators, called the Joint Committee on Pension Policy, controls the pension fund.

Bellevue City Council member Chuck Mosher counters, "If it ain't broke, don't fix it." He says that cops and firefighters can retire at age 53 and receive their full benefits guaranteed for the rest of their lives. He points out that no other public employees can retire so young with such good benefits.

Fox responds there's a good reason for that: Public safety is "a young person's job." He adds, "Whether you are fighting fires or chasing a 21-year-old crackhead down the street, you've done your service after 20 years. You are entitled to a pension." Moreover, Fox argues, the cost to taxpayers of improving the pension plan is zero.

"Why put the fox in charge of the henhouse?" counters Mosher. In 2003-05, he says, the plan will cost state government $549 million and local governments $822 million more than now. It will cost more thereafter. Since the initiative contains no source of money to cover these costs, he claims, government will have to slash services—including public safety. "It's ironic that [I-790] would actually put public safety at risk."

BOTH SIDES AGREE on the basics of how I-790 would change the Law Enforcement Officers and Fire Fighters pension fund. It would eliminate the legislative committee and install a new 11-member board of trustees: three cops, three firefighters, three local-government representatives, and two legislators. Fox says he doesn't know how many other public-safety-employee pension funds in the country have a cop and firefighter majority, but he allows that "it may be unusual."

Contributions to the fund would be 50 percent from workers (cops and firefighters); 30 percent from cities, counties, and fire districts; and 20 percent from state government.

After that, the two sides diverge sharply on what other key sections of the initiative mean.

Fox says I-790 wouldn't cost anything because it doesn't mandate an increase in benefits. He says the workers wouldn't increase the benefits unreasonably, because they will be paying half the cost of any new goodies.

Mosher scoffs at that argument. He asks: Why would they want to be in charge if they just wanted to leave the benefits at their current level?

But that's not what "scares the hell" out of Mosher. Mosher claims I-790 is a "real pickpocket." Currently, the pension fund's rate of return fluctuates depending on the performance of the fund's investments. During the go-go 1990s, the fund was earning double digits. Now that the stock market has crashed, the fund may even lose money this year.

He argues that the initiative locks in an 8 percent return rate for the pension fund. Any year that the fund makes less than that, all contributors—the state, local governments, and the workers—have to kick in the difference.

Even worse, every year that the fund's rate of return is higher than 8 percent, the excess is skimmed off and can only be used for "additional benefits for members and beneficiaries," Mosher claims. Now, a good year's excess is set aside to help offset a bad year's loss.

The state actuary's office prepared a report outlining the future costs of this program for coming budget bienniums. If I-790 does not pass, the pension fund payments in 2003-05 will total nearly $182 million (the state contributing $36 million, local governments $54 million, and workers $91 million). If I-790 does pass, according to data from the state actuary and the Office of Financial Management, the increase in 2003-05 will total $1.3 billion (the state contributing $261.7 million, local governments $392.1 million, and workers $653.9 million). The state actuary says it just keeps going up from there.

These higher payments are not only going to have dire consequences for state and local governments, they will be a hardship for cops and firefighters, warns Larry Risch, the deputy state actuary. "It will be too expensive—they will have to sell their homes," he says.