Cranley makes major pension deal with Cincinnati’s unions

Cincinnati leaders on Tuesday struck an agreement with unions representing city workers to fully fund the Cincinnati Retirement System over the next 30 years, a pact Mayor John Cranley said was historic and will bring financial stability to a city that has grappled with budget deficits for more than a decade.

Cranley said it’s “the biggest deal the city has made since the historic collaborative agreement back in 2002” between the city, the police department and the community that followed the 2001 riots.

It is a major accomplishment for Cranley, who staked his ability to structurally balance the city budget on being able to reduce what the city paid into the pension fund. The city owes $870 million to the system and has about 60 cents for every $1 of funding that is needed.

“It will secure the city’s financial house. Now there’s going to be certainty in budgeting,” Cranley said. “It will guarantee that the pension will be there for current workers, future workers and today’s retirees. There is a lot of sacrifice that people have made for the greater good.”

Under the agreement, the city will increase what it had hoped to pay into the system over the next three decades and retirees will receive reduced benefits. The deal does not require the City Council’s approval, according to the mayor’s office.

Prior to Cranley taking office, the city had been paying about 20 percent of its payroll and that figure was set to rise, putting a strain on the city’s ability to fund essential city services, such as police, fire, snow removal and road repair. Cranley wanted to reduce the amount to about 14 percent.

The mayor didn’t get exactly what he wanted. The city will pay about 16.25 percent a year for the next 30 years starting in 2016. Because the agreement results in a consent decree enforceable in federal court, the city won’t be able to skip payments or reduce them because it gets in a fiscal bind or future councils and mayors feel like spending the money elsewhere. The city’s current problems stem from investment losses during the Great Recession and council not paying what it should to keep the system financially sound.

The retirees agreed to allow the city to reduce retiree health care benefits and take $200 million from the city’s retiree health care fund and move it to the pension fund in 2016. In 2015, the city will make a one-time $38 million payment into the pension fund.

Retirees (not including city firefighters and cops who are in a different pension system) will see reduced cost-of-living adjustments. Current employees will see their COLAs rate increase from what it had been under changes approved by a previous City Council. All COLAs will be 3 percent but calculated based upon simple interest instead of the far-more-lucrative compounded interest.

Current retirees will not receive a COLA for the first three years of the agreement. Future retirees will not receive a COLA for the first three years they are retired.

Cranley and City Manager Harry Black announced the deal at 10:45 p.m. outside the University Club on Fourth Street. Final negotiations began at 1 p.m. Tuesday because the city and the unions, including the American Federation of State, County and Municipal Employees and Cincinnati Organized and Dedicated Employees, wanted the deal finished by the end of 2014.

The city had been negotiating with the unions for 10 months after agreeing to a complex legal gambit crafted by Cranley aimed at bringing finality to the situation and avoid years of costly litigation.

A group of yet-to-be-retired city employees had sued the city over the pension benefit changes made unilaterally by a previous City Council. Those changes increased employee contributions, set a later retirement age and reduced COLAs for not-yet-retired employees from 3 percent compounded interest to 2 percent simple interest. Under the agreement, all

COLAs will be 3 percent simple interest.

Current retirees had not seen their COLAs reduced by council, although the Cincinnati Retirement System board proposed doing so in 2013.

To avoid having fighting on multiple legal fronts, Cranley proposed that U.S. District Judge Michael Barrett combine the yet-to-be-retired city employees’ lawsuit with a petition by current retirees to join that suit but also include every other retiree who had not yet gone to court. Doing so created a mandatory class action lawsuit that included all members of the Cincinnati Retirement System as plaintiffs whether they had retired yet or not, allowing the city to reach a settlement with everyone at once.

Ensuring the current and future retirees had the same COLA was a major priority for attorneys for the yet-to-be-retired employees.

“We are elated that we were able to reach this agreement that is going to stabilize city finances that is going to guarantee benefits for retirees and for our members who aspire to be retirees in a way that’s going to be fiscally responsible,” said Sean Grayson, the attorney for AFSCME.

Wetterich covers government and politics, transportation and downtown development.