Charleston, W. Va., fights to avoid Detroit-like bankruptcy

Charleston, W.V. -- The city of Charleston is taking extraordinary steps to stay out of bankruptcy and keep its pensioners paid. After twenty years of service, the city's police officers and fire fighters are entitled to generous pensions.

"Oh, they are sweet!," said Charleston Mayor Danny Jones. "You could retire with a possible $50,000 a year, for the rest of your life."   

Due to poor planning, stock market losses and a host of other issues, Charleston's pension account fell to a dangerously low level. Charleston officials tell us the city's pension is currently underfunded by $274 million dollars. Under Mayor Jones' leadership, the city has undertaken a conservation plan: it is choosing not to draw any money from its pension system for the foreseeable future to give assets in the account time to grow.

"We were headed toward bankruptcy, I believe, if we had stayed the course," said Charleston city manager David Molgaad. By his calculation, the conservation plan should fully fund the city's pension system within 30 years.  

The plan does not mean retirees won't get their monthly checks. Failing to pay pensioners could hurt the city's credit rating, much in the same way not paying your monthly bills would lower your credit score. So Charleston decided to pay its roughly 450 pensioners from the city's general fund, the same pot of money used to pay for everything from street cleaning to salaries, which is largely made up of taxpayer dollars. And the portion retirees contribute keeps rising.

"We were paying 8% into these retirement systems -- the uniforms -- and now are paying 11.3%. And it will go up!," Mayor Jones told other city leaders at a morning meeting.

CHARLESTON IS NOT ALONE

The Pew Center For Charitable Trusts says in 2009 Charleston had one of the country's worst-funded pensions. It only had 24 cents for every dollar it promised to pay retirees. And yet, this city does not stand alone. The 100 largest cities in America had pension systems that were underfunded by $99 billion. And for states, the picture is even more bleak. According to Standard & Poor's, in 2011 (the last year for which complete data is available), the combined pension shortfall for all US states exceeded $830 billion.

"In the late 1990's pensions were one hundred percent funded and more generous pensions were given," said John Sugden, Standard & Poor's senior director of U.S. public finance. Yet during the great recession "some (states) contributed less than they needed to to their pension systems."

Moody's investor service now says, together, the 50 states have just 48 cents for every pension dollar they've promised. 

That money has to be paid: Unlike 401(k) plans, pensions guarantee a minimum monthly payment for life after retirement, even if the assets in the plan shrink to nothing. And as Detroit may learn, even bankruptcy is no guarantee cities can avoid paying pensioners. That's one reason Charleston is taking steps to cut costs and raise revenue.

CHARLESTON'S SAVING MONEY AND MAKES CUTS

The city is about to impose a new half-cent sales tax; has put all new police and fire hires into a state pension; shut down at least one fire station and is now charging everyone who works in Charleston a two-dollar-a-week fee.

Analysts say, unless politicians can strike new deals with municipal unions and reduce benefits, it's taxpayers who will have to foot the bill of underfunded pensions.

"In 2013 every single state had at least one bill that addressed pension reform including Puerto Rico," said Sugden. "Which could either mean more costs for employees or employers or more costs for taxpayers."

In an odd twist, Charleston is now considering not accepting federal grants that pay for programs like DUI checkpoints.

"Free money is great, but it is one of those things. It is current and nobody is looking at the long-term effect," said David Molgaad, Charleston's city manager.

Some federal programs cover overtime pay for police officers, but the extra pay ends up boosting their pension checks for life because of the formula used to calculate benefits.

"For every dollar we pay in wages, we are going to pay an extra five in retirement and there is an impact to that," said Molgaad.

It's an impact for which an increasing number of cities, states and people like Charleston Battalion Fire Chief Tim Roe are bracing. "When I started 20 years ago, I envisioned just being able to survive after the age of 50 and be able to put food on my table and pay bills."

Roe has a year left before being eligible for retirement and a pension. He hopes the city's plan to fully fund its pension system works out and that Charleston will be able to do as much for him as he has done for it.