Increasing city property taxes or creating a special 1 percent sales tax were two options presented recently for funding Atlanta’s skyrocketing pension costs.

The options were presented Feb. 22 during the first meeting of Mayor Kasim Reed’s special panel examining ways to reform Atlanta’s three employee pension programs.

Alternatively, the 14-member panel heard options during the two-hour meeting at Atlanta City Hall for spending less on pensions. Those included laying off more city workers or forcing employees to take time off without pay, or getting city workers to pay more money into their pensions.

The proposal favored most by union representatives on the panel was the special sales tax, according to TV news reports and The Atlanta Journal-Constitution.

More than 20 percent of city spending is devoted to pensions, which nearly equals the money spent to fund the police department.

Reed was quoted as saying Feb. 22 it will be tough for the city to provide services such as fixing sidewalks and adding more parks.

He said the potential greatness of the city “is really in the money we’re spending on pensions. It’s literally absorbing all of the dollars.”

The money the city spends yearly on pensions has more than doubled since 2001 —from $55 million that year to an anticipated $125 million in the 12-month period that ends June 30. By 2015, the annual cost to the city is estimated at $160 million.

The three pension plans covering police, firefighters and general employees have long been underfunded. In 2001 and 2005, the City Council approved several changes to increase retirement benefits. Those changes, however, were made without determining a way to pay for them.

Meanwhile, the three pension funds have not earned as much as anticipated and, the plans are about 53 percent funded, reported panel chairman John Mellott, a former publisher of The Atlanta Journal-Constitution and a certified public accountant. According to experts on pension funds, the recommended average is 80 percent.

The city reportedly now has an unfunded liability of about $1.5 billion. In 2001, the unfunded liability was $321 million.

The options were offered by Mellott during his presentation to the panel. The presentation did not include estimates of how much money these options would generate or save.

Reed reportedly said he would not support a property tax increase and City Council President Ceasar Mitchell also said he would be reluctant to raise taxes.

Police Lt. Scott Kreher, head of the city’s largest police union, reportedly said he was intrigued by the prospect of a sales tax to help pay for pensions, an idea that must be approved by the state Legislature.

City Hall officials say the annual return from a 1 percent sales tax should be between $115 million and $122 million.

John Schaffner

John Schaffner was founding editor of Reporter Newspapers.