Cities hurt budgets with police/fire pension spiking schemes, blame state

The Lansing State Journal did an Aug. 10 story that found some police and fire department employees who had retired with pensions paying more than their base salaries. For example, one police sergeant retired with a $88,612 pension after earning $70,093 a year while employed.

Here was the city’s response, according to the newspaper: “City administrators say the overtime that increased some of the Lansing police and fire pensions between 2010 and 2016 is likely a result of low staffing triggered by decreases in state revenue sharing and fewer qualified people interested in public safety careers.”

ForTheRecord says: The city’s response deserves scrutiny. It states there was low staffing because of a cut in state revenue sharing, which implies the city couldn’t afford to hire enough people.

State-shared revenue for Lansing did drop 2 percent from 2010 to 2016, or from $14.2 million to $13.9 million. But cities that point to state-shared revenue cuts as a source of their financial woes often don’t give a full picture of their complete budget. In this case, Lansing’s revenues increased from $106.3 million in 2010 to $122.5 million in 2016 – an increase of $16.2 million (or 15 percent), above the rate of inflation.

Residents should question whether the phenomenon of some employees retiring with higher pensions than base wages is a symptom of stressed budgeting, as Lansing alleges.

It’s far more likely to point the finger at the pension formulas that reward city employees for generating more overtime in the immediate years before they retire. That’s when that additional money can boost the employee’s retirement income significantly in a form of pension spiking that happens across the state.

Lansing is far from the only city that is dealing with spiked pensions.

A similar issue came to light in Ann Arbor when two retired city employees revealed how some police officers were inflating their pre-retirement salaries. They alleged that certain police officers were working the midnight shift and would greatly increase the number of traffic violations they wrote in the few years leading up to retirement. The officers knew that many of the tickets would be challenged in court and they would get additional overtime to appear to testify. City records appeared to support that claim.

One Ann Arbor officer collected an average of $22,688 in overtime in each of his last three years of employment. Another who retired in 2015 averaged $22,097 in overtime pay a year during his last three years. Both worked the midnight shift. (By comparison, the average annual overtime of all 72 employees who retired from the Ann Arbor police department from 2009 to 2015 was $7,743.)

The incentive for overtime pay extends beyond a larger paycheck during the years someone is employed. If those officers worked 25 years, that $22,000 extra in overtime, when applied to the pension formula, resulted in an extra $15,125 each year in retirement.

The solution is to have the calculations for public sector pensions based on base salaries only, excluding extra pay in the form of overtime.