Currently, the City of Red Deer boats of carrying a municipal debt of some $280 million, which gives the taxpayers a claimed municipal debt load of about 60 per cent of capacity. Unfortunately, despite some prodding from some citizens and at least one current member of city council, the city chooses to ignore or even hide an additional $41 million in obligations that have been held steadfastly from public view and comment.
The City of Red Deer currently offers its employees a defined benefit pension. This means that our employees are guaranteed a retirement salary based not on the performance of the investment portfolio, or the amount invested by the employee, but on the average of their five highest years of income. This pension is indexed to inflation, and guaranteed for life.
Thus, it’s possible for a 55-year-old city employee with a salary of $84,000 per year to retire after 35 years of service, and receive an indexed pension of $48,000 annually for another 30 or more years. For most people, this kind of retirement income would require well over a million dollars in interest-producing assets. It is also almost wholly unrealistic for the average family to expect to amass $1 million to $1.5 million in savings at that income level and at that age.
While it is highly problematic that one of the most glaring “wealth gaps” in Canada is the increasing disparity in lifetime compensation between public sector employees and the increasingly beleaguered taxpayers, it’s made even more of a problem by the fact that these public pensions are increasingly underfunded and will have to be propped up by the taxpayers who will have to shortchange their own savings in order to ensure that various levels of government can meet pension obligations that were often agreed to out of the view of the public.
For example, the Local Authorities Pension Plan is currently underfunded by some 20 per cent of total obligations, or $5 billion. The City of Red Deer’s share of that shortfall works out to about $41 million. Consider the level of debate over a $480-million arena in a city of one million people, and maybe a $41 million pension shortfall is worthy of some serious public debate here in Red Deer.
According to the LAPP website, steps are being taken to take up the pension shortfall. During 2013, we have been obligated to fund a 40 per cent increase in the employers’ contribution rate. I have not found any indication as to an increase in the employee’s contribution. The pension increase we taxpayers have been (apparently secretly, as there appears to be no public record of discussions) obligated to amounts to a sweeping two per cent wage increase across the entire city payroll. This can only be seen as a first step, as the LAPP website clearly indicates that the $5 billion shortfall takes the current increase into consideration.
My questions are basic. Has the city had discussions with its unions regarding the future funding of the current pension? Has either side broached the possibility of reduced pensions, or increased employee contributions to make up the shortfall? Has the city raised the possibility of eliminating the defined benefit plan and switching to a more realistic defined contribution plan more in line with what is more common in the private sector?
At the very least, an expenditure of this magnitude deserves public input, and the case could be made that it should be a referendum issue. It would behove city management to give this issue the daylight it deserves.
Bill Greenwood
Red Deer