The spike in Milwaukee’s annual pension contribution will be one of the top challenges facing the next mayor — and he or she won’t have much time in office before big decisions must be made.
Next year, current estimates predict the city’s annual pension contribution will increase from about $71 million to about $130 million, according to the city budget office. It is expected to remain elevated for years to come.
The projected increase is driven by factors including a drop in the anticipated future earnings on the city’s pension fund, from 8.24% to 7.5%.
According to its most recent actuarial report, the Milwaukee County Employees’ Retirement System (ERS) had a funded ratio of 75.3% and unfunded liabilities of $569 million. The county also has separate retirement plans for mass transit employees and temporary employees, but these plans have relatively small unfunded liabilities.
Milwaukee County ERS’ liabilities grew, in part, because the county did not make its full actuarially determined contributions between 2012 and 2016, according to its most recent Annual Comprehensive Financial Report. During that five-year period, the county’s contributions fell $12 million short of recommended levels.
Since 2015, Milwaukee County’s contributions to ERS have tripled from $19 million to $57 million, as it began to meet and then exceed actuarial recommendations. These contributions exclude debt service the county pays on pension obligation bonds it issued in 2009 and 2013.
In his 2022 budget address, Milwaukee Mayor Tom Barrett wrote of his city’s predicament, “We are facing an unsustainable demand driven primarily by the pensions for public safety employees. We must begin preparing now, setting aside money to blunt the impact of the massive payments coming due in just two years.”
For many local governments, making a big deposit all at once and being able to budget for more manageable payments in the future, for both debt service and annual pension payments, can feel like a relief.
But there are many reasons it’s a bad idea, and one that many municipal-finance observers find problematic.