Sharon Coolidge

scoolidge@enquirer.com

The city of Cincinnati and its workers reached what Mayor John Cranley called a "historic deal" to stabilize the city's pension system, a problem that loomed like a storm cloud over the city's finances.

Nobody walked away happy - not city officials, not current workers and not retirees -- but everyone agreed it was a fair compromise.

The agreement ensures pension benefits will be sustained for current and future retirees and shores up the city's financial position for years to come.

"I want to thank all of the parties for coming to the table and hammering out a compromise," Cranley said. "It's been a rough road and no party got everything they wanted. This settlement requires some sacrifice on all sides, but it will help strengthen the city's financial health and ensures the pension system will still be there for everyone in it."

The deal averts cuts to basic services for all Cincinnati residents.

Cranley, flanked by city union leaders and other top city officials, announced the agreement on the steps of the University Club Downtown at 10:45 p.m. Tuesday. All parties had been inside, negotiating since 1 p.m.

"We're elated," said Pete McClendon, the former president of AFSCME who is now the president of the Cincinnati AFL-CIO (of which AFSCME is a part). "The agreement stabilizes benefits ... in a way that is fiscally responsible. We look forward to a workforce that can retire with dignity."

Recent estimates had put the unfunded pension liability at roughly $862 million.

The settlement ends nearly 10 months of negotiations. Parties involved in the deal include the city of Cincinnati, along with retirees and various unions representing current employees.

Earlier this year, Cranley led an effort to bring the parties together to agree on jointly negotiating a settlement under the oversight of U.S. District Court Judge Michael Barrett, who is presiding over a 2011 suit brought by current workers over changes to their future retirement benefits.

Cincinnati City Council unanimously agreed to the framework in March.

Under the agreement, the city will:

* Contribute $38 million to the pension system next year. The city will do that over the next seven years by borrowing against future revenue.

* Contribute $200 million in 2016 from the financially stable retiree heath care trust fund to the pension system.

* Make a larger contribution to the pension starting in July 2016 -- 16.25 percent of the annual operating budget compared with 14 percent -- and continuing for 30 years.

Employees will:

* Take a three-year cost of living adjustment holiday.

* After that, the cost of living adjustment for both current retirees and active employees will go to 3 percent simple interest. Most current retirees receive an increase that is "compounded," meaning the previous year's increase is included in the following year's calculation. Current employees already have a 3 percent simple COLA in place when they retire. The total cost of the cut was unclear Tuesday night, but can be projected. It is a significant amount.

Cranley modeled the agreement on the 2003 federal collaborative agreement between the city's police department and several community groups over police practices in the wake of the 2001 riots.

City Manager Harry Black said a pension settlement is essential to continuing Cincinnati's positive momentum.

"We cannot secure the city's long-term financial future without solving the pension problem," Black said. "This outcome will pay dividends for the city for generations to come."

In the coming days, all sides will sign a formal agreement, which will then be submitted to the federal court. The agreement will resolve all active lawsuits related to the pension system.

The city of Cincinnati's pension system is funded by investment income, along with contributions by employees and municipal government.

Funding problems for the pension system stem from multiple causes, including poor returns on investments due to the stock market crash in 2007-08 and rising health care costs.

Reporter James Pilcher contributed.