Controversy over whether Milwaukee County continues to use its longtime transit operator or switches to a new company based in Dallas has shed light on the unusual structure — and inherent risk to taxpayers — of the current system, particularly its pension funding.
Under a contract put in place in 1975, Milwaukee County pays a lump sum for the private, nonprofit Milwaukee Transportation Services to manage and operate the bus system and contribute to the pension. However, MTS decides how to allocate the funds, which come from the state and federal governments, transit fares and county property taxes.
If the contractor makes a costly mistake and can't make up for it in the budget, the bill ultimately comes back to the county.
In 2012, MTS managers failed to secure a new paratransit contract before the previous contract expired. The Journal Sentinel reported that this forced MTS to sign two emergency contracts, which cost the transit system $8 million more over three years than the cheapest bidder would have charged. MTS found the money in the budget, but the extra expense came at a time when the county already had to make up for funding gaps with property taxes and a short-term federal transit grant.
Further, under the contract the county is ultimately liable for the pension, even though it doesn't have a single seat on the transit system board.
MTS holds three of six seats on the Milwaukee County Transit System pension board, which determines pension contributions and investments. Union representatives hold the remaining three seats. The county comptroller receives an annual actuarial report about the pension's performance that's incorporated into other audits, but the county has no representatives on the pension board to keep track of the fund on an ongoing basis or to help make decisions on how to manage the fund.
Keith Brainard, director of research with the National Association of State Retirement Administrators, said most boards of public or quasi-public pension funds consist of both stakeholders, such as employees and employers, as well as representatives of taxpayers and independent outsiders with financial expertise. MCTS is different.
"Taxpayers have the risk, but they're not in a position to really manage that risk. When you've got an arrangement in which one party bears the risk and another party benefits from that risk ... that's potentially a problem," Brainard said. "The party that's on the hook for the cost, or potential cost, ought to have some potential say in how that is managed and administered."
Former Milwaukee County administration and human services director Rob Henken, now a director of the Public Policy Forum think tank, said MCTS' spending and investment decisions impact the county budget as well as taxpayers and transit users because the county has to pay expenses not covered by other sources.
"This issue of pension funding is connected to both the local property tax and to the service level that the bus system is going to be able to provide," he said. "So from a taxpayer's perspective, to the extent that there is a potentially sizable liability for Milwaukee County with regard to the status of a pension fund, clearly, there should be an interest in having some public oversight of the decisions that are made that affect the long-term viability of the pension fund."
The current operating budget for the transit system is $164 million, with $19 million coming from county taxes.
The pension fund is currently worth somewhere between $370.6 million and $409 million, depending on the numbers used. Although it was fully funded in 2001, it had an unfunded accrued liability of $101.5 million as of Jan. 1.
Jackie Janz, a spokeswoman for MCTS, said the 2008 stock market collapse adversely affected the plan, but the board's conservative investment approach helped make necessary changes to funding levels in the past few years and set it on the right track.