Fort Smith Board told legislative help unlikely with pension fund shortfall

The chance of the Arkansas General Assembly providing some sort of legislative relief to benefit Fort Smith and other cities facing funding shortfalls in pension contributions fund is "less than 5%.”

That was the assessment of Sen. Jake Files, R-Fort Smith, in a frank conversation between a group of Fort Smith-area legislators and the Fort Smith Board of Directors Tuesday (Oct. 14).

The police and fire pension contribution fund maintained by the city of Fort Smith, which pays into the state pension fund for first responders, will go broke in 2019, according to projections provided by the city's finance department, if other funding sources are not found and implemented before that date.

City Administrator Ray Gosack said the trouble dated back to 2007 and 2008, when it became apparent that the city would begin drawing more out of the fund than it was putting in. He said it was a direct result of the national financial crisis of 2008.

"Interest and investment earnings went down substantially. And there's been some other factors, as well, that affect the viability of the police and fire pension fund. Now is the time to begin addressing how we get the fund back to solvency so that we don't have a crisis as we're currently projecting in 2019.”

Gosack said the legislature would be "integral" to the city being able to meet its financial obligations either by passing a constitutional amendment that would allow local voters to choose to increase millage rates for fire and police pensions or raising the cap on how much a city may charge in franchise fees.

But Files said a 2011 effort to have a very similar constitutional amendment failed and said there was no political appetite by members of the legislature to put a possibility of a tax increase to the voters.

"It's very, very difficult. In candor, I don't think this will make the cut. I don't think there's enough (cities affected). Even if the (Arkansas) Municipal League has it as their number one objective, I don't think it passes muster and it doesn't affect that many people.”

The four primary cities impacted would be Fort Smith, Hot Springs, Little Rock and Pine Bluff, which are face concerns regarding meeting retirement obligations and obligations the cities are committed to from a previous pension plan that is still paying out to retirees.

Files said even bringing up the topic of raising millages could put other funding at risk.

"People, and we're all pretty much elected by the same people, are saying 'I'm tired of this.' We start putting in jeopardy funding that's already there by continuing to push and push. … I don't think there's a good chance, I'd say less than a 5% chance of getting a constitutional amendment (placed on the ballot). And I think less than 5% of having it pass.”

Gosack continued pushing for legislative action, though, noting that the city was working "to identify all possible options and then work with our legislators to see what is legislatively possible to accomplish. I think LOPFI would like to see us take that approach.”

David Clark, executive director of LOPFI (Arkansas Local Police and Fire Retirement System), said one option he has suggested includes taking taxes paid on insurance policies and having a larger portion of that be allocated to LOPFI funding for local municipalities. He said should the legislature agree to it and whoever is elected governor next month sign off on the plan, it could add as much as $20 million in funding to the retirement plan, though it is unknown whether the funding would alleviate Fort Smith's deficit in the pension contribution fund, which could grow to more than $10 million by Dec. 31, 2022.

Since the contributions to the plan are required under state law, Clark said LOPFI would have authority to seize state turn back funds allocated for the city in order to fulfill the city's legal obligations to the retirement system.

In order to avoid that, City Director Keith Lau has suggested finding $500,000 in the city's budget to put toward the fund in order to buy more time for a funding solution. Gosack and city of Fort Smith Finance Director Kara Bushkuhl have said no funding has been added to address the situation in a budget set to be presented to the Board in November for approval.

Lau requested that Gosack present to the Board a set of three plans that would detail what cuts in the city budget would have to be made in order to bring the city to one of three places with regard to the pension contribution fund – 100% funded, 50% funded and 25% funded.

Gosack said it would not be ready before budget meetings in November with the Board, to which Lau replied, "I'm going to say this as nicely as I can, but I'm not going to vote for a 2015 budget that doesn't have some type of money or a potential solution for this problem.”

Bushkuhl said earlier this month that solutions not requiring a vote of the public include imposing franchise fees on water and sewer customers, as well as raising franchise fees already in place to the maximum of 4.25% allowed under state law. Such a move to raise the rates already in place would net the city about $500,000 in revenue, Gosack said.

The Board also discussed adding a possible third evening of budget meetings in November, though no date has been set for the possible meeting.