March 5 may prove to be a dark day for city of Traverse City employees but a welcome one, in the long run, for city taxpayers.
The city commission approved a collective bargaining agreement that covers about 15 clerical and technical employees in city hall whose contract expired June 30, 2012. The agreement slashes future pension benefits by a third.and creates a “blended” retirement system that replaces a portion of the traditional pension plan with a defined contribution to a 401k or similar retirement savings account. The defined contribution equals 4 percent of an employees pay.
Newly hired clerical employees will also forego lifetime health insurance, replaced by a 2 percent contribution to a health savings account.
Mayor Michael Estes said the agreement is something the city has been working toward for “a long time.” “This is the direction we’ve been trying to move,” he said. “Now we know it can be done. We are not going to negotiate a better deal with any other bargaining unit in the future.”
Under the agreement the employees won’t get a pay increase this contract year; raises over the next three years will equal the rate of inflation used by the state to cap increases on taxable values used to set property taxes. Tho group will get a raise of about 2.4 percent July 1, when the city’s next fiscal year begins.
City officials have been wrestling with ways to deal with a $27 million unfunded liability in pension plans created by the stock market collapse of the last decade. Pension formula changes will help reduce that liability, City Manager Ben Bifoss said.
Commissioner Mike Gillman, who has sounded the alarm about mounting pension debt voted no because the contract will go into effect before the state’s new Right to Work law goes into effect, which means employees will still have to pay union dues.
The contract reflects a new reality for city workers, one that many in the private sector have been living with for years. Private employee pension programs have been slashed or eliminated; in many cases employer contributions to 401K programs have ended. It’s part of the ongoing pain from the Great Recession and the fiscal recklessness that led to the crash of the housing market and the domino effect it had on the economy.
The winners here — and there are winners, despite the pain the new contract and future ones like it may cause city employees — will be taxpayers. Reducing the unfunded liability reduces future tax burdens, and, like it or not, had to be done.