Tuscaloosa finance committee briefed on $265 million projected RSA shortfall and conversion timeline

At a finance committee meeting, staff detailed financial and operational impacts of converting the city——s police and firefighter pension plans into the Employees Retirement System of Alabama (RSA), saying the combined projected unfunded liability after conversion would be about $265 million.

"The city of Tuscaloosa in RSA is projected at about $54 million. The current police and fire . . . plan will be total when it gets to RSA underfunded by $210 million. So combining those two together, we are going to be sitting at $265 million underfunded," staff member Miss Sanders said during the presentation.

Why it matters: staff said the conversion will raise the employer contribution requirement to RSA in year one to an estimated $23.88 million. After accounting for amounts the city already budgets for state, police and fire pensions, Miss Sanders said the city faces about $10.6 million in new general-fund spending in fiscal 2027.

Miss Sanders outlined the assumptions and cited an actuarial valuation from Kavanagh McDonald that informed the estimate. She emphasized the valuation uses January 1, 2025 data and that figures are projections: "these are all projections and assumptions based off of a Kavanagh McDonald valuation," she told the committee.

Funding plan and revenues: staff described an existing public safety fund, created in 2021, as the primary near-term source to smooth the conversion cost. The fund is supported by several revenue streams the presentation named and quantified where available: an Elevate Tuscaloosa public-safety transfer (proposed to rise to 25% of Elevate receipts over five years), about $2.5 million annually from an increased rental tax on large student-oriented housing, roughly $250,000 a year from a University of Alabama reimbursement for game-day public-safety costs, roughly $40,000 from ticketed-event public-safety fees, and red-light camera receipts (noted at $146,000 for the most recent year). Staff told the committee they planned to deposit $5 million of general-fund surplus into the public-safety fund as part of the mayor——s proposal.

Escrow projections and risk: staff showed projected escrow balances that decline in the years immediately after conversion and stressed the need for disciplined budgeting to prevent the escrow from reaching zero. "If we don't keep that four million in, we would have to find some other offsetting revenue," Miss Sanders said, urging continued fiscal discipline.

Credit-rating concerns: the presentation included excerpts from Fitch and Moody's analyses and warned the conversion and resulting long-term liabilities may attract closer scrutiny from rating agencies. Staff said Moody's and Fitch have already noted the conversion in prior reports and that the city will need to demonstrate careful management to avoid rating pressure.

Next steps and legal actions: legal staff (Scott) told the committee the council adopted an expression of intent in December 2022 and that the state approved Tuscaloosa's move to ERS in May 2023. Scott said staff are working on data transfers and that the finance committee should expect a resolution on the full council agenda next week asking the council to authorize steps to conform to RSA rules and make police and firefighter employees participants effective Oct. 1, 2026. "There will be other steps that will have to be taken . . . but this resolution will be council's sort of last big yes move forward with conversion," Scott said.

What remained undecided: staff said active-member elections, pension-board approvals and RSA signoff still must occur, and that timelines for those steps were being refined. The presenters repeatedly cautioned the numbers are projections and depend on future investment returns, payroll growth and policy choices.

The committee received the briefing; staff said the resolution would be placed on next week's city council agenda for formal action by the full council.