Fort Smith Board fails to override veto, votes to lower pension multiplier

A lengthy and at times tense Fort Smith Board of Directors meeting Tuesday night (June 2) was the result of an attempt to override a mayoral veto, and a vote on reducing benefits for a Fort Smith Police and Fire Department pension plan.

The Board on May 19 voted 4-2 to change the city’s budgeting system from a cyclical to a structural method. A majority of the seven-member Board preferred a “structural” method they say presents a real world financial picture. The city now uses a “cyclical” method that factors in fund balances from previous years.

City Finance Director Kara Bushkuhl has noted in a memo to the Board that advantages of a cyclical budget include familiarity, conservative revenue estimates, a multi-year perspective that provides better future financial planning, spending for actual needs, and the avoidance of negative changes in service levels because of changes in available funding. Her note did say a disadvantage of this budgeting is the possibility of “spending above current year revenues.”

Mayor Sandy Sanders vetoed the ordinance on May 30, saying in part that the “current process provides the flexibility to reduce spending if income levels fall short of projections, especially during economic downturns, while still providing essential services.” The Board needed five votes Tuesday night to overturn the veto.

On Tuesday Directors Keith Lau, Mike Lorenz, Tracy Pennartz and Kevin Settle continued to push their argument that a budget change gives them more accurate information on which to make timelier decisions. Lorenz said the city has operated a budget deficit in seven of the previous 10 years. He alleged that the cyclical method “makes that easier” because city staff is able to use savings from previous years to cover budget deficits. He argued that using a cyclical method is “an easy way to end up with a balanced budget that may not be balanced.”

City Administrator Ray Gosack said some of the budgeting ideas proposed by the Directors seeking a budget change could be adopted in several months during the upcoming budgeting process. Director Pennartz interrupted Gosack to say she was not willing to wait months to adopt “sound financial policies … especially after we have spent hours reviewing these policies.”

However, the arguments were not enough. Directors George Catsavis, André Good and Don Hutchings voted to uphold the veto, which prevented a five-vote margin to override the veto.

PENSION SHORTFALL
The other sensitive issue was in addressing a looming shortfall in the city’s pension for fire and police retirees that could go broke by 2019.

Fort Smith in 2004 implemented a higher 3.28 multiplier for the pension plan, up from the base multiplier of 2.94. When the base multiplier was adopted, the city had an $11.863 million balance in its pension contribution fund and was adding $1.346 million annually to the plan. That was before the financial crisis of 2008, when the plan started withdrawing more money than the city was putting in, setting it up for the eventual insolvency projected for 2019.

The resolution before the Board on Tuesday was to revert back to the “BP 1” multiplier of 2.94.

“The change to BP 1 is estimated to save $447,534 in 2016 and $516,297 a year by 2026. This change is one of the actions discussed at the study session to make Fort Smith’s LOPFI Contribution Fund more financially sustainable,” City Administrator Ray Gosack noted in a memo to the Board. “Continued discussion of additional actions to strengthen the fund will be planned for an upcoming study session. The actions will assure proper funding of the city’s pension obligations.”

The BP 1 multiplier is used by a “vast majority” of cities participating in the pension program, Gosack said in the memo.

Several police and fire employees addressed the Board, saying average pay is already low for fire and police officers. They also noted that pay raises have been infrequent over the years, and that the one thing the officers have to look forward to is the retirement plan. Fort Smith Police Chief Kevin Lindsey said lowering the benefit multiplier would “severely demoralize” his department.

Following remarks from police and fire officers, Director Lau said he has been trying for the past 2.5 years to get the city staff and Board to address the problem.

“I’m mad as hell because I’m put in this position,” Lau said, adding that the pension problem is an example of results from a poor budgeting process.

Lau and Pennartz also objected to forming a committee and giving it three months to come up with a solution, with Pennartz said a committee is “just another way of putting off making a decision.” Lorenz agreed, saying that forming a committee is “kicking the pension problem down the road, and the end of the road is getting close.” Pennartz was one of several Directors who said multiplier change is just one part of addressing the problem. She “committed” to the fire and police officers of not pushing the problem forward but instead finding other “revenue enhancements” and general fund budget cuts to address the pension problem.

Director Catsavis was also pointed in his remarks, saying that “past mismanagement and neglect” resulted in the city funding things other than necessities. He noted that the city can find “millions of dollars for waterparks,” but when it comes to finding money for pension shortfalls, “Y’all (police and fire officers) are out of luck.”

A motion by Director Hutchings to form a committee and give them three months to find a solution failed by a 3-4 vote. The Board then voted 5-2 to move the multiplier back to the BP 1 formula. Directors Catsavis and Hutchings voted against the multiplier reduction.

Following the vote, the Board set a June 23 study session solely for the purpose of considering other possible solutions to the pension issue.