The city has underfunded the employee pension fund by $2.79 million over the past two years, Mayor Bob Kiss said Friday, and taxpayers will become personally aware of that shortfall in higher tax rates over the next several years.

Chief Administrative Officer Jonathon Leopold said the underfunding of the pension fund is one of the most acute financial problems facing the city. While it is "not catastrophic," he said, "it is a very serious problem."

The city, Kiss said in his first formal news conference since winning election in March, would fully fund the pension fund this year and simultaneously begin to whittle away the previous funding gap.

Leopold said it is too early to announce the size of the retirement tax increase. The rate, adjusted for last year's citywide property reappraisal, is 10.81 cents per $100 valuation, more than double the 4.8 cent rate in 2000. Each penny on the tax rate, Leopold said, raises approximately $360,000 in revenue.

The mayor said he has formed a special task force comprising business leaders, city councilors and Leopold. Within the next month that group will grapple with the immediate funding needs of the pension fund. Thereafter, it will look at the pension needs "strategically," and recommend how best to fund it from year to year to make sure it remains healthy.

Kiss said he regretted the need for a tax increase. The pension fund gap, he said, is "manageable, but we need to be honest about the numbers."

Both he and Leopold avoided any direct criticism of the administration of former Mayor Peter Clavelle and its management of the city's finances.

The city's financial woes were the focus of a budget committee of councilors and members of the administration that met for months last year. The core problem is that city revenues are increasing too slowly to meet the rising costs of government, and Clavelle warned that cuts in city services might be necessary in the future.

City voters by a narrow vote gave the city permission to enact a 1 percent local sales tax on top of the state sales tax. That has now been approved by the state and will add approximately $800,000 to city revenues for next year's budget.

The Clavelle administration anticipated a total budget gap for fiscal year 2007 of approximately $1.7 million. Kiss put together a budget task force to work on the next budget. The Board of Finance and the City Council will receive briefings on their findings next week.

The pension fund gap first surfaced in September when the Retirement Board went public with a demand to the City Council that the city meet its funding obligations. The board estimated then that the underfunding amounted to $4.6 million over the previous two years.

The fund is supported three ways: from employee contributions, by taxpayers through the retirement fund tax and from the fund's investment returns.

Leopold said recent gains in investment returns have improved the fund's outlook, and labor agreements this year have led to larger contributions from employees. Still, he said, to return the pension fund to good health, the increase in the tax would be necessary. He said it's too soon to know how long the increase might last.
Contact John Briggs at 660-1863 or jbriggs@bfp.burlingtonfreepress.com. Pension panel members David Boardman, former chairman of the Retirement Board. Retired vice president of Hickok & Boardman.
Eileen Elliott, Burlington attorney.
John Ewing, retired president of Bank of Vermont.
Jane Knodell, Progressive city councilor from Ward 2. Member of Board of Finance. associate professor of economics at the University of Vermont.
Andy Montroll, Democratic city councilor from Ward 6. Former council president, member of Board of Finance and member of Super Budget Committee. Attorney.
Emma Mulvaney-Stanak, director of the Vermont Livable Wage Campaign.
Karen Paul, owner of Paul Financial Services.
Kurt Wright, Republican city councilor from Ward 4. State representative and former member of Board of Finance.
Jonathan Leopold, city's chief administrative officer.