Grand Rapids is addressing legacy costs

Gregory Sundstrom

An unfortunate guest commentary written by Jacob Ignatoski first appeared in Bridge Magazine on March 20, 2014 – all without seeking current and correct facts about the City of Grand Rapids’ transformation efforts since 2010. It was later picked up by MLive.

While the title of the article suggests a legacy cost crisis of epidemic proportion is occurring in Grand Rapids, the article itself only refers to a previous study that deals with legacy costs of cities across the state, thus leading readers to believe that Grand Rapids is failing to address legacy cost issues.

As a researcher, Mr. Ignatoski should not rely on three-year-old source data or use a single source of information to inform opinion. More thorough research would have found that the financial discipline of the city’s Transformation Plan is actively reducing total pension and retiree health care obligations by millions of dollars – by almost $40 million as of June 30, 2013.

Meanwhile, our transformation plan has also allowed us to build our general operating fund savings to over 10 percent, to build our Budget Stabilization Fund savings to over 5 percent of General Operating Fund operations and create transformation savings to invest in Sustainable Asset Management.

This failure to follow up on the progress of Grand Rapids is an extraordinary disservice to the city and its residents. Even the most cursory follow up would show a much more relevant picture of the city’s financial situation - a remarkable transformation has taken place in Grand Rapids:

• City employees have taken a 12.5 percent reduction in total compensation over the last two contracts.
• Grand Rapids has cut GOF operating costs by 10 percent through LEAN, transformation, innovation and collaboration.
• The city’s work force has been reduced by 36 percent since 2002 (more than 500 employees) and is producing the same or better outcomes for its residents.
• The financial discipline of our Transformation Plan has helped us achieve a financial outlook where ongoing revenues meet or exceed ongoing expenditures.
• The city is budgeting to fully fund the Actuarially Required Contribution (ARC) for retiree health care.
• Prior to the recent Great Recession, funding in the city’s pension systems exceeded 100%. While the city’s pension plans have not fully recovered from the Great Recession, pension plans funding levels will continue to rebound as the economy strengthens and as the city and employees make actuarially determined annual contributions.
• Legacy costs represent future costs of pension and retiree healthcare costs based on actuarial studies. The city’s discipline in controlling and then reducing these liabilities and then budgeting to fully fund the ARC each year is exactly what a responsible city should be doing.
• The City and its employees have made substantial changes to retiree health care benefits that have significantly reduced the cost of these benefits to the city and its residents. Here is a listing of the changes already implemented:
• Closed the Defined Benefit Retiree Health Care Systems to new entrants.
• Converted existing, non-vested employees to a Defined Contribution Retiree Health Care Savings Account.
• Implemented premium sharing for retirees who will “float” with the active employees enrolled in the health care plan.
• For active employees who remained in the Defined Benefit Retiree Health Care Plan, they now have to earn the benefit over time (i.e. they are not immediately vested).
• The City’s General Retirement System has been closed to new entrants. All new non-sworn employees will contribute an equal share to an industry-standard defined contribution retirement benefit. The Police and Fire Pension system, although not closed to new entrants, has lowered the multiplier for future benefits and increased employee contributions for those choosing to keep their existing level of benefit. The city has consistently contributed 100 percent of the ARC for the Pension systems.
• Far from following communities spiraling into despair, Grand Rapids has been strategic in envisioning and executing one of the most significant municipal turnarounds we know of and is instead a leader in strong, farsighted financial management. Grand Rapids is well on its way to becoming one of the most financially sustainable cities in the nation.

Gregory Sundstrom is city manager of Grand Rapids