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A growing legacy cost for city

November 14, 2012
Steve Schulwitz - News Staff Writer , The Alpena News

ALPENA In order to attract top-notch employees, Alpena Municipal Council has always offered attractive benefits and retirement packages. For years the high cost of fulfilling these commitments were helped paid for by the return on the city's investments. When the economy was doing well the retirement fund was thriving and funded more than 100 percent.

Then came 2008 and the economy and stock market were turned upside down and like many others, the city's investments and retirement fund took a large hit. A blow the city is still trying to battle back from.

Currently, the city's retirement fund is 92.1 percent funded, but its annual contributions to meet the obligation of the former and current workers is a strain on the city's budget and fund balance. For fiscal year 2012-13 the city needed to budget for the contribution of $684,956 into the fund and depending how the investments pan out next year, the number could go up or down.

Clerk/Treasurer Karen Hebert said when preparing a budget she figures a 10 percent increase in the allotment into the retirement fund. She said she is conservative in the estimate because it is simpler to add money to the budget than find money to pull from it once it is completed. Hebert said it is hard to pinpoint what the contribution into the fund, which has about $25 million in it, but a solid number should be available in March or April.

"Our actuary will do an analysis in the spring and she will determine how the market affected us, how many people retired, how much our increases in wages were and all of those things will factor into the amount," Hebert said.

Councilman Shawn Sexton said there is no easy fix to the amount of money the city will have to contribute to its legacy costs. He said the easiest way for the fund to return to being fully funded would be for the economy to turn around and have a higher return on investments.

"There is no palatable quick fix solution to the legacy costs. The city traditionally paid much of our yearly legacy costs with the earnings the fund created in the market," Sexton said. "When the economy crashed and the market dropped with it we were unable to offset our legacy costs with the profit from our investments. When the market improves, the impact of legacy costs on our annual budget will return to more manageable levels."

Mayor Matt Waligora said other communities are faced with the same challenge as Alpena and he believes the city should model after some of them that have made strides in reducing their liabilities.

"We will have to have clear discussions on how we can offset and reduce these costs. We will need to make some decisions which will hurt, but we have cut almost everything we can, and I don't want to get five years down the road and we wish we would have made some decisions to prevent this and we didn't.We need to look out at least five years and ask ourselves what the next council will wish we had done. Whether it is popular or unpopular we need a program that suits everyone to a certain extent. I'm ready to help make those tough decisions."

The council has taken some action to reduce future obligations for its retirees. The city has implemented employee contributions, negotiated smaller multipliers and offer smaller packages for new hires. Sexton said any changes made to the retirement system need to be done with the best interest of the employees in mind. He said the city can't afford to not have the best staff in place as it can.

"It is important to keep in mind that part of the reason we have a dedicated and wonderful group of employees is because we attracted them with a competitive package in the first place," Sexton said. "We cannot reduce what we offer to the point we cannot attract and retain the same quality of people we currently enjoy."

Waligora agreed with Sexton but didn't rule out more sacrifices may need to be needed by the employees and the unions.

"It is important for the employees to not feel threatened, especially the younger workers," Waligora said. "We don't want them to begin to look for other jobs because they think the city is not looking out for them. We do have to be realistic though."

Currently there are about 170 former and current workers receiving or set to receive full retirement and healthcare from the city. Sexton said the city made a commitment to these workers and he will not support altering the deals that were in place.

"What I will not advocate is cutting the retirement benefits to those who are already retired or who are near retirement," Sexton said. "We made a commitment to these employees and they have planned their entire careers and retirements around these commitments. The city has an ethical obligation to reduce the legacy costs without affecting those who already receive them or are close to receiving them."

Councilman Sam Eiler refused to comment on the issue.

Steve Schulwitz can be reached via e-mail at or by phone at 358-5689.



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