CHICAGO -- Cincinnati Mayor John Cranley's complex plan to address the city's large pension liability advanced Wednesday with city council approval.
The deal calls for the city to negotiate with its retirees and employees in federal court to cut pension costs and guarantee contributions in a binding consent agreement.
A group of retirees have filed a lawsuit in U.S. District court fighting the city's pension reform proposals.
The city wants the court to organize all the retirees and its union into a single class-action lawsuit, then negotiate reforms in a global consent decree hammered out in mediation.
Active and retired employees from the American Federation of State, County and Municipal Employees would be a party to the talks.
The city also wants to shift $100 million from the relatively well-funded retiree health care account into the pension fund. Cranley, a bond attorney who won office last November, said he wants the deal in part because the city was set to meet with ratings agencies Thursday, and that downgrades tied to the pension liability are possible.
In July, Moody's Investors Service downgraded the city's general obligation bond rating to Aa2 from Aa1, largely due to the pension debt. The Cincinnati Retirement System has an unfunded liability of $862 million and is only 61% funded.
The council March 19 passed an ordinance that authorizes the city manager to "take all necessary actions to stabilize the financial viability" of the city's retirement system, according to a memo from the interim city manager Scott Stiles, which outlines the resolution.
The first reason the city needs to take action, according to the memo, is because Moody's and Standard & Poor's will be rating the city's bonds this month.
"The ratings agencies will want to see a plan that structurally balances the general fund budget that includes controlling pension costs," Stiles said in the memo. "Without an acceptable plan, the city's credit rating is in jeopardy."
The city also has a $22 million deficit that's 7% of its general fund, Stiles said.
Last year, the state auditor warned that Cincinnati's decisions to underfund its pension system "are literally strangling current budgets -- and the trend will only grow worse in future years."
The auditor, who has the power to declare local governments to be in a state of fiscal emergency, suggested a series of solutions, one of which is pension reform.
"The attached ordinance is a major step toward preserving the city's credit rating, balancing the general fund budget, maintaining local financial control of the city, and achieving 100% CRS funding over 30 years," Stiles said.
The city wants to reduce annual cost-of-living increases, freeze the COLAs for a period of time, and reduce retiree health care benefits.
The city would, in exchange, guarantee a certain annual contribution to the pension fund.