Pension Benchmarking Pains
This is the sixth of our weekly From the Desk of the Finance Director column. Click here to see a list of all editions.
November 3, 2015
From the Finance Director’s Desk …
In a Council meeting during budget preparation season, the Mayor asked, “How do our pension expenses compare to other cities in our county?” I cringed as the City Manager replied, “Oh, I’ll have our Finance Director get that for you for our next semi-monthly meeting.” I wasn’t able to interject and qualify the request before we moved to the next item on the agenda.
The next morning, I spoke with the City Manager about my new assignment. I wanted to ask, “Exactly what is it you don’t want me to do this next week?” but, keeping my career prospects in mind, I calmly stated that this request for information wasn’t a simple endeavor of comparing dollar amounts, because there had to be context to understand the data.
“What do you mean Charlie? Just call up your buddy Finance Directors, ask how much their pension expenses are, and put it into a staff memo to council,” he said. With a silent sigh, I explained how it would be difficult to conduct “apples to apples” pension comparisons:
- We have a Fire Department and some of our neighboring cities do not.
- We have a different benefit tier for our police employees than other cities in the county.
- Some cities pay the employees’ share of pension expenses, and our city does not.
- One of the cities is in Social Security and we are not.
I continued to describe how I would need a comprehensive report to explain all the variations and an hour long presentation with a Power Point. Oh, and I’d have to attempt to normalize the data as best I could.
This project would set me back even further during the budget season, but nevertheless I began the arduous task of preparing a survey instrument to send to my colleagues in the neighboring cities.
Comparisons and benchmarking have always been a major source of frustration for me. I know the benefits:
- Governments benchmark their performance against other organizations and regional/national aggregates to aid the budget process.
- Governments do comparisons to provide context about essential public services.
- Governments improve human resource management by comparing themselves against each other.
- Governments learn from each other to spread innovation.
But it is such an arduous task! Comparisons have improved in the digital age as cities have posted more and more information online. Now I can download almost all agencies’ CAFRs that have Notes to the Financial Statements with key information that I would need both to put my assignment into context and to attempt to normalize the data. However, even with the CAFRs, we’re talking about PDF documents that have to be downloaded and manually entered into spreadsheets.
A week later, I had the idea to include demographic information into the swelling staff comparisons report. After all, unfunded accrued actuarial liabilities (UAAL) could be expressed on a capitated basis, a per household basis, or even on median household income. (Yes, I admit that I was unabashedly looking for statistics to make my city stand out as the best financially positioned city!)
Demographic information is not always uniformly presented in all CAFRS, so I went to the US Census Bureau. Then I ran into the problem that US Census Bureau population estimates weren’t as current as information I had been using in my city…. More struggle….
Finally, I had to get on the phone with my peers, email them collectively, begging for data with the promise of sharing the report with them (as if they really wanted it).
My final product was a cogent five page staff report with observations of the fiscal prowess of staff’s pension reform efforts. After delivering a summary of the report from the podium, I waited anxiously to field questions.
The Mayor looked up over his reading glasses, peered at me intently and said, “all I asked for was a list of pension expenses from all the other cities.”
Charlie Francis is a municipal finance expert. He has more than forty years of local government financial management experience in both the public and private sector, including twenty years of experience as a Chief Financial Officer. Most recently, he served as the Director of Administrative Services and Treasurer for the City of Sausalito where he earned the unofficial title of “OpenGov super user”. He has also served as a finance manager for the Town of Colma, CA and as CFO and acting City Manager for the Cities of Indian Wells, CA and Tracy, CA.
Category: Government Finance