Board increases amortization period, frees up cash for city

Sunday Times Newspapers

ALLEN PARK – City officials expect to free up about $1.25 million in the city’s budgets over the next five years as the result of a move Tuesday by the Police and Fire Pension Board.

Members voted to extend the amortization period for police and fire pension funds from 15 to 25 years to improve cash for the city. The amortization will not exceed five years and will be reviewed annually.

Mayor Gary Burtka, who also is chairman of the Pension Board, said the amortization period will return automatically to 15 years after the initial five years unless the body decides to extend or change it.

The change frees up about $286,000 this year, and about $1.25 million over the next five.

Amortization is the writing off of the cost of an intangible asset – such as pensions – as an operational cost over the asset’s useful life. If an asset is tangible, like a building, the term depreciation is used. Amortization also refers to the gradual repayment of a loan in equal installments.

“We’re rushing through this right now because we need the budget to be done,” Pension Board Trustee Ellen Templin said.

The City Council must approve the proposed fiscal year 2010-11 budget by June 30.

Trustee and Vice Chairman James Wilkewitz, a detective lieutenant with the Police Department, said the board’s move Tuesday will not affect pension funding. He did say, however, that the change should not be taken lightly or as a matter of routine.

It represents an annual reduction in the city’s contribution to the pension fund, he said, meaning there will be $286,000 less in the fund each year that can be invested and earn interest. That scenario could mean lost money for the fund if the economy rebounds soon, Wilkewitz said.

The 15-year amortization period was effective when the pension fund was fully funded 15 years ago, he said.

While Wilkewitz had no problem with the 25-year limit, he suggested a yearly review by the board and having it expire and revert to 15 years as part of the motion.

“Obviously nobody can tell what the economy’s going to be like in five years, or we’d all be gazillionares,” he said.

Burtka, Templin, Wilkewitz and Councilwoman Beverly Kelley, who also is on the Pension Board, voted to approve the change. Trustee David Tringer was absent from the meeting.