Mayor Jim Newberry and the police and fire pension board reached an agreement Wednesday that will help the city avoid severe cuts in services next year while fully funding the pension system by 2015.
The agreement calls for the city to issue $130 million in bonds over the next three years to help pay off the $246 million unfunded liability in the pension fund.
"Although we will still have painful budget cuts, we will be able to avoid cuts that would cripple crucial city services," Newberry said in a news release.
Newberry and the Policemen's and Firefighters' Retirement Fund Board have been at odds since November when the board set the city's contribution rate for the fiscal year that begins July 1 at 46.63 percent of the total payroll for police and firefighters. The 46.63 percent amounts to about $30 million.
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Newberry had said the city would have to make drastic cuts, which might include laying off 100 police officers and closing five fire stations, to meet the 46.63 percent rate and pay the debt service from a $70 million bond he had planned to put into the fund.
On Wednesday, the pension board clarified that the 46.63 percent rate was not in addition to the $70 million bond and that the bond could be counted toward the city's contribution rate.
The board also gave the city flexibility in how it raises the money to meet the 46.63 percent rate. The board agreed the city can meet the 46.63 percent by selling bonds, using money from the general fund, the city's main operating account, or through a combination of bonds and general fund money.
Sgt. Robert Cottone, a Lexington police officer and a member of the pension board, said the board did not care how the city raises the money to get the 46.63 percent.
"We just want to get the 46.63 percent," he said. "How the city raises the money, it doesn't matter to us."
For his part, Newberry agreed to fully fund the $246 million unfunded liability by 2015.
This year, the city will contribute 17 percent of payroll and the $70 million from the bond for a total of $80 million.
In each of the next two fiscal years, the city will contribute the 17 percent of payroll and $30 million from a bond.
The Urban County Council has already approved the $70 million bond for this year, but has not signed off on the two $30 million bonds.
Newberry brought the proposal to the board, said Maj. Mike Tracy, a firefighter and a pension board member. "He's committed to trying to fix this problem."
The $130 million in bonds and the annual 17 percent contribution rate over the next three years is "going to go a long way toward fixing the problem if it doesn't fix it in three years," Tracy said.
The agreement reached between Newberry and the pension board is an example of "great cooperation between our public safety folks and the administration" and a recognition of the fact that the city is committed to fixing the pension problems, said Councilman Kevin Stinnett. "It is a great first step, but it's only half the battle. ... We can't keep on putting people into a pension plan that's going to drain the city's coffers."
To control spiraling costs, Newberry has proposed starting a new retirement system within the same fund for new police and firefighters. The new system would provide reduced benefits.