"I don't like the idea of paying them at all. It's not really our fault," said Councilman Fred Kramer. But, he conceded, "We're going to have to pay something."
Earlier this week, Maryland State Retirement Agency Executive Director Peter Vaughn told city officials they could pay the debt over 40 years. At a 7.5 percent interest rate, that option would cost the city $49.2 million.
The city owes the money because the state retirement agency has been under-billing Hagerstown and 22 other local government bodies for years, officials said.
The city is still repaying a $7 million debt to the retirement agency that was discovered in the early 1980s.
Before city officials decide how they will pay the debt, Councilwoman Susan Saum-Wicklein said they must confirm that $9.96 million is an accurate amount.
Then, if the state won't waive the interest, the Council might consider issuing a pension obligation bond, because that should carry a more favorable interest rate than the rate offered by the state, Council members said.
The 7.5 percent interest rate proposed by the state is "totally unacceptable," Saum-Wicklein said.
Councilman William M. Breichner could not be reached for comment.
City officials also need to find a way to determine yearly whether the city is paying too much or too little into the state pension plan, Saum-Wicklein said.
That might require legislation, she said. Vaughn told city officials on Tuesday that the only way that status could be determined was for the city to tell state officials it planned to withdraw from the state pension plan.
The city would have to pay the state agency a fee of $3,000 to $5,000 to determine its financial status, Vaughn had said.
"I don't think it's a necessary fee," Councilman Mark Jameson said. Banks don't charge customers for annual statements and neither should the state, he said.
Kramer said he believes the city should withdraw from the state pension plan for employees hired in the future.
Metzner agreed, saying he would prefer that the city start its own plan for new hires.
Jameson and Saum-Wicklein said it was too early to say whether the city should abandon the state system because the cost of starting an independent plan hadn't been determined.
Sager and several Council members agreed that the city's financial status with the pension plan needs to be checked every year or two to make sure such a debt isn't run up in the future.
Sager, who took office in 1985, a year after an earlier pension fund problem was discovered, said he didn't think city officials would have to check up on the state after that situation was resolved.
"Since it had blown up and been fixed, I didn't have any qualms," he said. He said he felt reassured by annual reports that stated the state pension plan as a whole was outperforming its expected investment earnings.
"In retrospect, perhaps we put too much trust in the state to give us proper accounting and financing," said Jameson.