A pair of consultants hired by City Hall and the New Orleans Business Council to help fix the city’s ailing firefighters pension fund delivered a withering assessment of the fund’s overall health on Tuesday.
“I’ll be blunt,” said Vijay Kapoor, of the Kapoor Co. “The financial situation of this fund is the worst that we’ve ever seen for a fund this size. If no action is taken, this fund will run out of money in a few years. And this is not an issue that is going to get better on its own over time.”
Such dire warnings about a pension fund that will cost the city more than $60 million next year aren’t new. But Kapoor and Segal Consulting have provided one of the most comprehensive and unflinching looks at the fund to date. They were scheduled to present their findings to Mayor Mitch Landrieu’s new working group on the issue Tuesday evening.
The working group — with representatives from the city, the local firefighters union and the private sector — is planning to meet once a month for the next four months. The hope is to get as close as possible to a unanimous vote among the nine members for a reform plan, with an eye toward passing whatever legislation is necessary in Baton Rouge.
A consensus from the working group would boost any plan’s chances at the Legislature. The group includes parties that have typically been at odds over how to handle the fund, including Landrieu’s top deputy, Andy Kopplin, and union President Nick Felton. And it’s scheduled to wrap up its work well before the start of the legislative session in April.
At the same time, the options available for fixing an unhealthy pension fund are limited and painful: cutting benefits, increasing what current firefighters must pay into the system or dedicating an even bigger chunk of the city’s budget to make up for investments that have gone bad.
Other controversial topics could be up for discussion as well, including how the fund is governed. Right now it is run by an independent board consisting of four firefighters elected by their colleagues and three members appointed by the mayor. Landrieu has tried unsuccessfully in the past to gain complete control of the fund.
The consultants advising the mayor’s working group have so far only described the extent of the problem. They haven’t offered any specific recommendations yet. That won’t happen until future meetings.
In a 50-page PowerPoint presentation Tuesday, Kapoor laid out in brutal detail the pension system’s downward trajectory, the result of three decades worth of missteps on the part of city and state officials.
The so-called “old fund,” established for firefighters who joined the department before 1968, should represent a shrinking expense for the city as older retirees pass away. Instead, cost-of-living adjustments for those still on the rolls have kept the city’s bill nearly flat over the past five years. And the city is still forking over $17 million a year to pay off bonds it sold more than a decade ago to finance benefits for those members, even though the proceeds of that bond sale have dried up.
The “new fund,” meanwhile, has accumulated an overall liability — the estimated cost of paying all future retirees their benefits — of nearly $424 million, while its assets have dropped to about $84 million at last count.
Pressure on the fund brought Landrieu’s administration into conflict with the firefighters union almost immediately after he took office in 2010. The two sides are still in court over his decision to shrink the city’s monthly payments to the fund, which fluctuate based on the value of the fund’s assets compared with its liabilities. And they have come to blows in the past over proposed reforms at the state Legislature.
The working group is a stab at trying to settle disagreements over how to solve the fund’s problems once and for all, though it’s by no means guaranteed to work.
“Our goal is to meet for four months and see if we can’t come up with some sort of a consensus,” said Paul Flower, who heads the Business Council and will serve as a 10th, nonvoting member of the group.
He acknowledged that a split vote from the working group on any type of reform plan — rather than unanimity, or near-unanimity — will mean a harder lift when it comes to winning any necessary approvals from the City Council or the Legislature.
“A consensus vote would make it easy. A close vote would not make it easy,” he said.
Follow Andrew Vanacore on Twitter, @avanacore.