Dear Mayor:

As you know, the State will release billing for pension costs on July 31. These are the amounts that will be due in April of 2007. For PERS the amount represents 60% of the valuation developed by the actuaries for July 1, 2005. Due to compounding, bills should be on average 82.1% higher next year than they were this year, except for those towns that have ERI. There will be ERI billing in addition for them. The 82% increase represents the overall change in valuation plus the fact that municipalities will be going from 40% to 60%.

The accrued liabilities grew by almost 70% for three reasons. Payments made to retirees deplete the assets; there was modest investment income in 2005 as a result of low interest; and we did not make full payment to the pension fund. The State will have an even higher bill because they are a year ahead of us in the "smoothing process" and should be paying 80% but in fact the State has not budgeted that amount. The Governor has only budgeted a little more than 50%. Its accrued liability problem will continue to grow.

For Police and Fire, the billing is three years behind and therefore the billings to be released on July 31st will be based upon July 2004 valuation. Local governments will be, as a result of the "smoothing technique", obligated to pay 80% of the amount. Therefore, the billing which will be released on the 31st of July will be for $422,743,217. This represents an 82% increase for normal and accrued liabilities and added to that will be any early retirements for those towns that passed early retirements. Local government pension bills for Police and Fire will grow significantly. This is a result of growth in the costs of normal accrued liability by 36% from July 1, 2003 to July 1, 2004 and the "smoothing technique" goes from 60% of the total to 80%. Therefore, the combination of 20% smoothing and 36% growth results in a net increase of Police and Fire bills of 82%. Remember there are 44,211 active members of PFRS and 208,899 active local PERS members. The cost in April 2007 will be $9,500 vs. $1,100 per member.

Many thanks to League's Pension Study Committee for their work on this analysis. Please click link to Property Tax Reform - Pension & Health Benefits for a more expansive analysis of costs associated with PFRS and PERS.

PROJECTED LOCAL EMPLOYER PENSION CONTRIBUTIONS for State Fiscal Year Ending 2007