Once Safe, Public Pensions Are Now Facing Cuts
By MARY WILLIAMS WALSH
Published: November 6, 2006
After losing a leg in the line of duty, Dan Toneck, a San Diego police officer, spent nearly a year in rehabilitation before returning to work, doing his job for another five years with an artificial limb.
Jack Smith for The New York Times
Dan Toneck, a retired police officer who lost a leg in the line of duty, is among 180 disabled retirees in San Diego who face pension cuts.
Mr. Toneck, 37, was granted a disability retirement last year after 16 years on the job. Some of his fellow officers wept as he left headquarters for the last time.
Then, 10 months later, the impossible happened. San Diego cut his pension by about 10 percent, along with those of about 180 other disabled city retirees. “They’re trying to pay the bills on the backs of the employees,” Mr. Toneck said.
Across the country, government workers’ pensions are protected by guarantees even stouter than those on pensions in the private sector. The legal promises, often backed up by union contracts, cover more than 15 million people.
Years of supporting court interpretations have enshrined the view that once a public employee has earned a pension, no one can take it away. Even during New York City’s fiscal crisis 30 years ago, no existing pension promises were reduced.
But now a number of state and local governments are quietly challenging those guarantees. Financially troubled San Diego is the highest-profile example, but a handful of states, cities and smaller government bodies have also found ways to scale back existing promises and even shrink some current payments.
While still only scattered cases, these examples may be an early warning sign of what could be coming elsewhere. As local officials take stock of unexpectedly large obligations to retired public workers, some are starting to question whether service cuts, sales of government property and politically acceptable tax increases can ever go far enough to bring things into balance.
“This is a real-life problem,” said Paul S. Maco, a partner in the law firm of Vinson & Elkins who advises municipalities on the disclosure of these obligations.
Mr. Toneck said that years ago, while he was still on the police force, he saw signs that San Diego was cutting corners. He recalled having to go to Kmart to buy jumper cables for his squad car. He was not surprised to learn the city had shortchanged the municipal pension fund. But he never dreamed his pension could be reduced.
“It was guaranteed, written in stone — when I retire, I make this much and they’re not going to be able to touch that,” he said.
His pension was set at about $35,000 a year. But last May, he received a letter saying he would start getting about $31,000 instead.
He and the others on disability pensions fell victim to an ambiguously written pension statute that lawyers noticed while combing through San Diego’s financial records in the wake of a pension scandal. But there do not have to be accusations of wrongdoing for a government to start looking into whether its obligations to retirees can be reduced.
Some places, including Oregon, Rhode Island, Milwaukee County and several cities and towns in Texas, have already cut public workers’ pensions on the basic argument that their pension funds had gone disastrously out of balance. Whether because of investment losses, faulty calculations or other factors, these places have declared that they can no longer sustain a level of benefits that had looked affordable just a few years ago.
Beyond the sheer political difficulty of removing an existing benefit, an array of legal guarantees — some in statutes, some in state constitutions, some in city charters — were supposed to prevent such reversals. But lawyers have been finding chinks in the armor.
In Texas, the pension guarantee in the state constitution has an unusual clause, giving towns and cities the chance to hold referendums on whether to opt out.
Voters in Houston made that choice after learning that pension sweeteners issued there in 2001 were allowing some people to retire in their 40s. Others, who participated in a special program that let them simultaneously work and collect pension money in high-interest accounts, got an even better deal, sometimes walking away with one-time payments of a million dollars or more on top of their regular pensions. The city raised the eligibility requirements for retirement and cut some of the biggest sweeteners. |
