State Paid $1.727 Billion Toward Local COLAs

SEPTEMBER 2005 - Cities, Towns Continue To Benefit - Since the inception of Prop 2 1/2 in 1981, COLA payments totaling $1.727 billion have been distributed by the state to local retirement systems, according to Jean Simone of the State Retirement Board who coordinates the payments.

And, although the state returned the responsibility of new COLA costs to local governments in 1998, the Commonwealth is still paying a significant amount each year to the locals for COLAs that were built into municipal pensions during the '81-'98 period.

The amount distributed to the local boards in FY'05 was $60.965 million. This figure has been declining each year due to the deaths of older retirees who were receiving state COLA money. At its peak, the annual state appropriation was over $115 million.

"I enjoy working with the local boards in distributing this money," said Simone. "The boards' staff have been very cooperative in furnishing the necessary verification data each year that I need in order to approve payments."

It should be noted that state COLA payments for local retirees were the direct result of our Association's action in 1981 when the Legislature refused to pay state and teachers COLAs without a guarantee that local government retirees would also receive COLAs.

"There was only one way to address this dilemma," said Association President Ralph White. "The money for all COLAs would have to come from the state budget, an unprecedented expenditure. Starting with House Speaker Tom McGee, we were able to convince the Legislature of this temporary solution."

The rest, of course, is history. The "temporary move" became an 18-year-run during which time the ever-increasing liability to the state pension fund resulted in only three COLAs during a nine-year period prior to 1998 when the law changed, requiring local retirement systems to pay for any new COLAs.

"Initially it was the right move in 1981, but ultimately, the COLA law had to revert back to the individual responsibility of each retirement system. The free ride was hurting everyone," said Association President Ralph White. "And the change has benefited all members. The COLA base was raised from $9,000 to $12,000 in 1998 and eligible retirees of all retirement systems have received annual COLAs since that time."