Tensions fill pension bill for Pa. towns
September 6, 2009
Jeff Shields, Philadelphia Inquirer
Before Philadelphia City Council passed Mayor Nutter's $3.8 billion budget in May - a budget that relied heavily on action by the state legislature - veteran politicians whispered that any plan depending on Harrisburg would come with a price tag.
That tab has now come due for state Democrats and their allies in organized labor in the form of landmark Pennsylvania pension changes.
Many of those changes are directed at propping up municipalities across the state struggling with the recession; otherwise, more than 300 of them would see their annual pension contributions double, triple, or quadruple, according to the state. Reduced pension payments mean more money for municipal services.
Proposed changes include long-term cost controls and rules to discourage pay-to-play in pension management contracts. These ambitious provisions have been crammed into a bill that started as a request to help solve Philadelphia's budget woes.
"These are issues that we've been working on for a term now, and they reflect general policies that need to be addressed on general pension reform statewide," said State Sen. Pat Browne (R., Lehigh), who has championed the changes that Republicans attached to the bill in the GOP-led Senate. "The status quo has to change."
Provisions of the bill that would dictate pension terms in Philadelphia and other distressed municipalities have whipped up a furious backlash from organized labor, and last week Democratic leadership announced plans to change the legislation to appease unions and Pittsburgh, which faces a state takeover under the bill.
"It's a middle-of-the-night bill that's part of somebody's political agenda that has nothing to do with reform, and has no consideration for the people who are going to have to live with these consequences," said Rick Poulson, an attorney for union firefighters in Philadelphia, Johnstown, and uniformed employees in smaller municipalities statewide. He predicted lawsuits galore if the bill passes.
A House vote has been moved from Tuesday to Thursday, but the nature of the changes proposed by the majority Democrats is unknown, and the bill's chances are uncertain.
More than 135,000 people are enrolled in 3,160 municipal pension plans in the state - a figure that doesn't include state and school employees.
The current bill would benefit typical state taxpayers if it kept pension costs down and enabled their borough, township, or city to avoid tax-hikes and service cuts wrought by an oversize pension obligation.
"What you're starting to see is the recognition of how rising pension costs can impact negatively on other essential services that municipalities deliver in their communities, and also the fragile fiscal condition of many municipalities," said Steven T. Wray, executive director of the Economy League of Greater Philadelphia.
Current benefits for municipal employees in Philadelphia and elsewhere would be protected but could not be enhanced until their pension was 90 percent funded - a goal that is not even on Philadelphia's horizon.
That would mean no new cost-of-living adjustments, for instance. And new workers would enter a plan that provided lower benefits, required higher contributions from them, or both.
These mandates, usually subject to contract negotiations as part of the larger compensation package, are at the heart of union complaints.
"Everything we have accomplished for our police and fire, they are trying to destroy," said Richard Saraceni, recording secretary for Fraternal Order of Police Lodge 27 in Delaware County, which represents 37 departments and more than 1,000 members.
Saraceni spent last week on the phone, urging House legislators to defeat the bill, arguing that it would undo the police arbitration process that has been in place since 1968 and that some critics blame for escalating public-safety costs.
Among many provisions in House Bill 1828:
A freeze on pension benefits for any "moderately distressed" municipalities whose pensions are funded between 50 and 70 percent until the health of their fund improves. According to current figures, that provision would apply to 89 municipalities, from Philadelphia, Johnstown, Scranton, and York down to small boroughs such as Clifton Heights in Delaware County and Bristol in Bucks.
A permanent state takeover of between seven and 30 "severely distressed" pensions with less than half the assets required. This would include Pittsburgh but not Philadelphia - for now - and also freeze current pension benefits permanently. Only one municipality in this region, Atglen in Chester County, would qualify under current calculations.
"Think of this as tough love," said James McAneny, executive director of the state Public Employee Retirement Commission, which has been advocating for many of the changes. "Realistically, those plans are not going to get out of that mess on their own."
New employees in "severely distressed" municipalities and Philadelphia would go into a new pension system. The new system would require that Philadelphia's new plan cost no more than 80 percent of the old plan, and in smaller municipalities, police officers and firefighters could be asked for the first time to accept a pension that did not guarantee a fixed monthly payment.
Browne said the plan would provide real reform, not just through the state takeover of struggling funds but by prohibiting "moderately distressed" pension plans from increasing benefits until they were 90 percent funded. This would apply to several Philadelphia-area municipalities and at least 114 around the state, according to 2007 figures.
In addition, in Pittsburgh, the practice of including overtime in salary calculations would end.
And the bill outlines more than nine pages of new regulations to curb pay-to-play in the awarding of lucrative contracts for fund managers by pension boards - long seen as a problem.
But it would do little to shore up underfunded pension plans in the short term.
Bill Rubin, vice president of the Philadelphia Board of Pensions and Retirement and an official with District Council 33, the union for the city's blue-collar workers, said the relief outlined for Philadelphia would put its pension fund in line for a state takeover at the end of what would be Nutter's second term in 2016.
The pension fund's actuary has already predicted that the fund has only a 38 percent chance of having more than half the assets it needs to pay long-term bills in 2016. That presents no improvement from current conditions. The fund is expected to dip below 50 percent, and the state takeover would let the city make reduced pension contributions - which past city leaders have been happy to do.
"There's no plan for solvency in any of this," said Rubin, who predicted the bill would lead to the bankrupting of Philadelphia and other plans.
City Finance Director Rob Dubow, the pension board's chairman, said only: "It's a long time to try to figure something out."
Additional push-back has come from the Pennsylvania State Association of Boroughs, which advocated for short-term relief on pension contributions but wants municipalities to retain control.
Lower Gwynedd Township Manager Larry Comunale, whose Montgomery County community would be considered "moderately distressed" under the bill, said the state needed to overhaul the pension system, looking at its funding levels and formulas.
The current bill, he said, "is like taking a painkiller for a disease. It may relieve the pain temporarily, but it doesn't kill the disease."
Still, longtime advocates of a pension overhaul said the bill made a good first pass at meaningful changes.
"It's a major step. It's a huge step," said Brian Jensen, deputy director of the Economy League of Southwestern Pennsylvania. "Is it perfect? No. But it's damn good."