MORGANTOWN — While nearly every city in West Virginia has already taken the police and fire pension funding lifelines first offered by the West Virginia Legislature in 2010 (Optional I) and then again in 2023 (Optional II), Morgantown has not.
Today, the city finds itself with more than $110 million in unfunded promises to its first responders.
Something has to be done.
On that everyone agrees.
What is that something?
Currently, the city’s funding model requires it to contribute 107% of what it contributed the year prior. That equates to about $2.7 million total for the two pension plans this year. Hitting that 107% threshold triggers the state’s Municipal Pension Oversight Board to release the city’s portion of the state premium tax, which equaled about $1.6 million this year. Those two pools of money equal the annual contribution. To that is added the employee contributions and 25% of the municipal sales tax revenue, which is earmarked specifically to pay down the unfunded liabilities.
This is the plan that dug the hole the city finds itself in.
“Every year, or every other year, we’d get these reports from the actuary, and they’d say ‘You’re a runaway train and you’ve got no hope to save it,” Assistant City Manager Emily Muzzarelli said, explaining the city has continued to lose ground regardless of how much money is funneled into pensions. “They obviously implemented the sales tax and put at least a quarter towards pensions, but we still saw this horizon where we’re not going to be able to make those payments. What are we going to do?”
What city leadership wants to do is switch over to the Optional II plan before it’s too late.
Optional II is a funding method through which an actuary determines the city’s annual contribution needed to cover the fund’s normal cost and amortize any deficiency by a deadline of 2063.
Under this method, the city would increase its total annual contribution to the plans to $5.5 million. Benefits would be locked in for any existing employees and retirees, but all new hires would be shifted to the state pension plan.
The city wants to help fund these annual payments a couple ways. One, it has nearly $11 million in sales tax revenue – the 25% that, by code, must be used to pay down the pension liability – sitting in an account. This money would help cover the large initial payments. Further, the city would implement a 15% increase in fire fees – generating an additional $641,000 each year – to assist in paying down the plans.
Representatives of the city’s police and fire departments have a few issues with this move.
One, they say the state plan is worse than what the city currently offers and they believe eliminating it will remove a bargaining chip when it comes to recruitment and retention.
Two, they’re frustrated that the aforementioned $11 million in sales tax revenue wasn’t being pumped into the pension accounts as it was collected, but instead sitting for years in a checking account, then recently moved to a money market account.
City Finance Director John Fergison admits not allowing the pension boards to invest the money likely meant the city failed to generate an additional $500,000 in interest.
“We didn’t lose money, but we didn’t potentially earn an additional $500,000,” he said. “But we owe $111 million, so it’s kind of insignificant.”
Fire Pension Board Secretary Tanner Dalton said the city could keep its existing plan and pay its liabilities down far quicker if it immediately split the available sales tax money between the plans and continued with the 107% annual contributions. Quicker still, he said, if the city allocated an additional 25% of sales tax revenues to the plans, as is permitted in code, and pushed forward with the increase in fire fees.
He said the city could have the plans caught up in 2041 under this method, saving millions by shortening the pay-off period. He compared it to deciding between a 15-year or 30-year mortgage.
City leaders pushed back, explaining the compounding 107% payments in the current plan will reach a point where they’ll force significant cuts elsewhere. Further, they explained the additional 25% in sales tax revenue in question currently goes into the city’s general fund to pay for day-to-day operations.
“Everyone would choose a 15-year mortgage over a 30-year mortgage. Certainly. Then you figure out that instead of a $1,000 monthly payment, you have a $2,200 monthly payment. I still have to pay my utilities. I still have to be able to feed my kid. I still have to be able to make a car payment,” Councilor Danielle Trumble said. “If this were the only thing we were looking at, certainly it makes sense. But when we’re talking about in 2040 having an $8 million payment, which is 20% of the city budget … what are we going to cut?”
As an alternative, Fergison said he’s awaiting word from the Municipal Pension Oversight Board on what’s been referred to as “the great compromise.”
In that compromise, the city still moves to Optional II, but immediately moves the accrued sales tax revenue to the pension funds. That amount is then credited back against the city’s annual minimum contributions amortized through the end of the pay-down period.
According to numbers shared by Fergison, the city’s annual contribution would range from just over $1 million in 2026 to $3.2 million in 2064.
“At our current funding levels, we can make those payments,” he said, explaining that if the police and fire pensions get a better rate of return than 6.5%, it would further lower the city’s minimum required payment.
The closure of the police and fire pensions to new entrants and switch to the Optional II financing method will be up for first reading as part of Tuesday’s Morgantown City Council agenda.
