Municipalities, counties and schools across South Carolina face a bill of at least $77 million initially for the rising cost of pensions for workers.
That’s the preliminary price tag of a plan to shore up retirement benefits for nearly 160,000 employees in town halls, county administration buildings and classrooms, according to the state Public Employee Benefit Authority.
The tab is coming due following warnings of significant red ink in state-managed pension plans.
About $20 billion more in benefits is owed municipal, county and school personnel as well as 51,000 state and university workers than is available, partly because investments didn’t yield the returns expected, studies say.
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That projection led to a plan moving through the General Assembly that would require both employers and employees to chip in more though 2022 to reduce the gap.
The bulk of paying extra to assure pensions stay in the black would not fall on the state, under the legislators’ plan. It would fall on cities, towns, schools and other agencies that handle recreation, utilities, health care and other services and whose employees are part of the state’s various retirement plans.
While the amount that workers would pay is capped at 9 percent of an employee’s earnings, the share paid by employers would rise to 18.6 percent in 2022 from the current 12.6 percent.
Some local officials call the changes unfair since they have no say over operation of the retirement systems and investments.
“It’s a bailout,” Lexington Mayor Steve MacDougall said. “They’re looking to us to make up for mistakes that they (state officials) made.”
Struggling to pay
The bill that’s coming could be double the initial estimates.
Overall, the raises would cost local officials $155 million initially. But some of that increase would be offset by a legislative promise to pay half of the first-year tab.
The General Assembly “doesn’t want mutiny” over the financial burden it is passing along, Lexington County Council chairman Todd Cullum of Cayce said.
But whatever the amount, it will be “a pretty big number to meet” compared to those in the past, said Jeff Palen, chief financial officer for the city of Columbia.
Local officials are scrambling to find ways to pay the rising tab, an effort hindered partly by a state cap on local property tax increases.
In Lexington County, the initial amount equals a $2.50 increase in the property tax bill on a home valued at $100,000. But Cullum calls a tax hike for pensions “a last resort.”
He also isn’t eager to consider layoffs amid pressure for more deputies, firefighters, ambulance crews and 911 dispatchers to keep pace with the increase in people moving to the county.
The pension increases come amid resentment over steady cuts in state aid to local governments during the past decade.
“Any additional burden placed on Richland County at the present time is going to create continuing problems,” veteran County Councilman Greg Pearce said. “Meanwhile, it (reduction in state aid) goes on and on and on.”
Lexington County leaders in 2015 were frustrated enough to stop using property taxes to help pay for state mental health care services located in the county. The $650,000 annually was shifted to hire 10 paramedics for emergency medical care instead.
It’s too soon to say what effect the rising cost of pensions will have on providing services, many local officials say.
But a few hints are emerging.
The increase, combined with higher costs for health insurance, equals a 1 percent raise in tuition at the University of South Carolina, spokesman Wes Hickman said.
Chipping in more for pensions is the latest step in shifting “the burden of paying for higher education away from the state and on to students and families,” he said.
Many local officials hope revenue growth and savings will be enough to handle the pension increases.
But some warn the raises will be difficult to absorb, particularly in areas striving to add facilities and staff to keep pace with growth.
Richland 2, the largest school district in the Columbia area, faces increases that start at $2.3 million initially and could total $22 million overall.
“We will have to make some tough decisions,” Richland 2 school board secretary Craig Plank said. “Some programs have to be looked at to see if they can be retained, but what those are is premature to discuss.”
A few dozen small communities, including Arcadia Lakes and Summit in the Midlands, won’t feel any impact, officials said. All operate largely with part-time staffers who aren’t enrolled in state pension plans.
Shoring up pensions likely will inhibit hiring and increase workloads for those who remain, some experts predict.
“Existing staff is going to have to do more with less,” said Reba Campbell, deputy executive director of the Municipal Association of South Carolina.
The reduction in take-home pay created by the changes also could make jobs at town halls and in classrooms less attractive, she said.
But ending the threat of a pension shortfall is vital, all sides agree.
Accomplishing that means “everybody is going to have to feel some pain,” Campbell said.
Staff writers Cassie Cope, Sarah Ellis and Avery Wilks contributed to this story.
By the numbers
Here is the estimated statewide cost of the pension increase, beginning July 1, that would fall on local officials after the state contributes part:
Cities, towns and counties: $49.2 million for nearly 55,000 workers
Police: $18.1 million for 17,500 officers
Schools: $87.7 million for nearly 85,000 teachers and other staff
Source: South Carolina Public Employee Benefit Authority
S.C. lawmakers eventually could walk away from the state’s pension plan. Page 1A
Estimates for the first year’s cost of local pension increases with state assistance, with the tab continuing to rise though 2022:
Counties: Lexington, $717,000: Richland, $750,00
Municipalities: Columbia, $900,000; Lexington, $60,000; West Columbia, $100,000; Cayce: not available
Schools: Richland 2, $2.3 million; Lexington 1, $1.7 million; Lexington-Richland 5, $1.25 million; Richland 1, Lexington 2, Lexington 3 and Lexington 4: not available
Higher education: University of South Carolina, $3.3 million for all campuses combined; Midlands Technical College, $450,000