Public sector pension plans need to change before city finances skyrocket

by Anthony Furey, Ottawa Sun


What will ultimately push Ottawa’s finances over the edge isn’t sinkholes or new police cruisers — it’s salaries, benefits, pensions.


In my last column analyzing the 2013 draft budget, I looked at the transit budget. There’s a good chance fares will continue to increase, perhaps at greater rates, because while ridership has slightly dropped, the amount we owe OC Transpo employees has gone up.


But transit salaries are to some degree the canary in the coal mine. We notice them first because their union negotiations are played out on the front pages, because we see them in their uniforms out on the streets.

In truth, the financial burden of those desk staff at City Hall is also weighing on us.


Let’s hone in on a random division — the city’s real estate partnership and development office. There’s no real controversy about this office and no one is arguing for its downsizing. Yet despite actually reducing the number of employees by 1%, the office’s salaries and benefits costs have gone up 4%.


Why? Simple: “All programs include an adjustment for 2013 contract settlement, increments and benefit adjustments.” In other words, that’s just the way they roll at City Hall. Good for them. Not so good for those of us footing the bill.


I’m not the only one who raises his eyebrows when I see these figures.


“One of the most significant costs that the city must deal with is the unfunded liability in the pension fund,” wrote Bill Tufts, founder of Fair Pensions For All, in an e-mail. He’s concerned about the $7-billion liability shouldered by Ontario cities after the province downloaded responsibility of the Ontario Municipal Employee Retirement System. Ottawa’s share is more than $500 million and growing.


Tufts presents a number of potential solutions: Employees taking pay cuts (which he doubts they’d agree to), services being cut, services being privatized and an overhaul of pension funding.


Tufts writes: “Currently, workers are on a defined benefit pension plan, which, upon retirement, gives them a percentage (usually 70%) of their best five years salary, for life. This cash-for-life program is the reason the pensions are so massively in debt. In 2013, the average employee will contribute 10.6% of his or her salary to their pension and expect to collect a full 70% upon retiring. So how do they think upon retirement they can collect 70% of their salary? The math doesn’t add up. It’s time to have the OMERS plan change to a hybrid pension plan, and city council should lead this charge.”


Ade Olumide is also asking questions via the Ottawa Taxpayer Advocacy Group. He wrote via e-mail: “Why is Ottawa allowed to use the Vested Employee Sick Leave reserve funds to fund 2012/2013 pension deficits? Why is the health tax an employer obligation? When OC Transpo joined OMERS in 1999, the city became responsible for 100% funding of pension shortfalls, why do they get a better deal than other employees?”


In truth, the answer to any “why?” is the same as above: Because that’s how they do things at City Hall. That is until some politician or segment of the population demands a change.


When times are good, arguments about pension liabilities seem irrelevant side issues. But in truth, when the public sector makes gains a few percent above that of the people paying their bills, and that compounds over the years, you start to notice the impact. You also notice the danger it holds for our future fiscal stability.


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