City Pension: Will 2018 Bring a Drop in Rate of Return?

Institute readers who have followed our pension work over the years know that in 2010 the City of Pittsburgh pledged a thirty year stream of parking tax revenue to bolster its sagging pension funds.  That stream is above and beyond what the City puts in as its minimum obligation under Act 205.  This year the number totals around $64 million and next year is projected to increase to $70 million (see page 131 in the City’s budget).

Part of what was discussed at yesterday’s meeting of the City’s pension fund board was the City’s assumption of how much their investments could be expected to earn. Rate of return was lowered in 2014 after there was a great deal of reluctance to do so in 2012 but the former Mayor eventually agreed to it on his way out of office.

While the topic was discussed the plan looks like it will be held off until 2018 due to the late hour of the budget process.  Some numbers were presented to show what shaving a 1/4 point or a 1/2 point off of the rate of return would cost in terms of dollars that would have to be put in to the fund.

PAT Pact Back for Another Try

According to news reports the Port Authority and its union (specifically rank and file bargaining unit and first level supervisors) will have a second consideration of a contract that was rejected by the workers in September.  We noted at the beginning of November that fact finding commenced, and the fact finder’s report is available on the website of the Pennsylvania Department of Labor under the state’s Labor Relations Board page.

That report pointed out that the issues the union wished to address included sick leave, health insurance, late arrival to work (“sharking”), and non-operating employee wage rates.  The Authority wished to address wage, salary, and pay rates.  It is on this latter point that the Authority proposed reducing annual increases in 2017, 2018, 2019, and 2020 by 1/4 of a percentage point each year due to savings the Authority believed were not going to materialize from health benefits.  The fact finder’s opinion on the wage boost of 11.25% over the four year contract “…is certainly competitive and by the evidence submitted the wage rates would place the rate among the top operators in the United States when adjusted for inflation”.  This is essentially what we pointed out ten years ago in a Policy Brief.

Though there have been plenty of changes to the Port Authority–Act 89 funding, a reconstituted board, changes from the 2012 contract, etc.–one constant remains, and is encapsulated by the union’s lawyer: We think it’s a good deal, even with the changes, but it’s up to the membership…They have to decide if they want this or they want to go on strike.”

Pittsburgh Schools Concerned about Racial Disparities in Achievement

The President of the Pittsburgh Public Schools board of education says priority must be placed on reducing the growing black-white achievement gap. Is this the correct way to view this problem? It is not the disparity that is important. It is the terrible academic achievement of black students, which continues to worsen from already deplorable levels. The disparity can be eliminated by reducing emphasis on white achievement, which is not all good in comparison to the better school districts in the state.

 
Fixing the gap is not the right approach. How do we get all students to do better? If the poor performance of the black students is caused by factors beyond the scope of the school district to address, that fact should be recognized. There are things the District could do. Number one would be to enforce attendance rules. The high levels of absenteeism in the high schools are an enormous obstacle to educational achievement. Two, offer true school choice beyond charter schools. Three, reduce the institutionalized excusitis for poor achievement that leads to a downward spiral of individual student aspirations and expectations.

 
Free public education is a privilege. It is simply immoral to continue the fiction that a quarter million in tax dollar spending per student over thirteen years with so little to show for it is acceptable.

Washington County Millage Rates Starting to Materialize

South of Allegheny County the first reassessment since 1981 is wrapping up for Washington County.  For the County and its municipalities (66 in total) the fiscal year that starts January 1st 2017 requires adjustment to current millage rates to achieve revenue neutrality, and, if so desired, an increase in tax rate under the terms of Act 93 of 2010.

Based on news accounts, the County expects to approve its 2017 budget in two weeks, and other municipalities are making preliminary movements toward their tax rates.  The article on the County says that the rate should be “a tad less than 2.5 mills” which is close to what was presented in August when a meeting was held in Peters Township and the rate was projected to be 2.36 mills.  Peters Township expects to roll back its 13 mill rate to 1.522 mills, Canonsburg projects taking an increase after establishing its revenue neutral rate, and Cecil Township expects to stay at a revenue neutral rate.

PPS Preliminary Budget Missing the “I Word”

Pittsburgh Public Schools, like Philadelphia’s and Scranton’s school districts, operates on a calendar year rather than a July-June fiscal year and has released its preliminary budget for 2017.  The budget plans on expenditures of $594 million next year and it expects no change in the real estate tax rate of 9.84 mills.  In 2017 and future years the District expects to be running an operating deficit but with dipping into reserves still envisions having a fund balance of close to $50 million by 2020.

As we wrote earlier this year in response to an Audit by the Auditor General’s office on the District’s finances, recent years of PPS budgeting projected “insolvency” but kept pushing the date further into the future.  Previous budgets forecast a year end fund balance of $17 million at the end of 2018, the most recent year that insolvency was expected to arrive.  The prelim budget for 2017 projects a year end balance of $94 million.

In the section titled “Adoption of Annual Budget” the mention of insolvency is gone in 2017.  The budget notes “While this forecast is somewhat optimistic, it
is not without some concerns. It didn’t take into effect the addition of 3 charter schools (approved by the State or other Districts) that were not slated to open or were already opened and enrolled PPS students. In addition, as in the past, the District does not know the extent of the possible reduction in Real Estate revenue due to pending appeals.”  Basically boilerplate language from 2016’s final budget but with the reference to insolvency removed.

Blair County Might also Boost Taxes to Maximum

Two weeks ago we wrote about the plans of the City of Altoona to increase its real estate tax for the 2017 budget year.  That increase might go to the maximum allowed under Act 93 of 2010, which stipulates the guidelines for tax increases following a countywide reassessment.  Altoona is located in Blair County, which last reassessed in 1958.

The County government itself announced the possibility that it too might increase its real estate tax rate up to the maximum 10% following the establishment of a revenue neutral millage rate.  Based on comments made in an article on the proposed tax increase, the revenue from the hike would be going toward the county’s pensions.  And based on the County’s data on tax rates, the millage rate for County purposes has been on quite a rollercoaster ride in the past five years.

Pennsylvania’s Jobs Weakness Continued in October

Labor Department figures for October are not what Pennsylvania needs to see. Recent employment growth weakness that has put a damper on the Commonwealth’s tax revenue collections continued in October. Unemployment edged up to 5.8 percent from September as household employment rose less than the labor force.

 
But more importantly, employees on private payrolls slipped lower in almost every major industry sector. Only the mining, information, and leisure and hospitality sectors posted small increases. Interestingly, education and health, and the professional and business services sectors that have been leaders in jobs gains registered declines. Not large losses, but a substantial reversal from strong gains in recent years.

 
Since March, private employment is up a scant 2,000 jobs with goods producing employment down 6,000. Compared to October 2105, private payrolls are up 35,000. But bear in mind that over 12 months October 2014 to October 2015, jobs rose 55,000 and in the prior 12 months employment climbed 71,000. So what we are seeing is a significant shift to much slower growth that now borders on stagnation.

 
This does not portend well for state or local revenue collections that are based on jobs and incomes.

 
How long it will take a for a more pro- growth regime in Washington to impact Pennsylvania is a really important question to follow closely.

Will Pension Strategy Pay Off?

The state’s largest city, Philadelphia, is exploring an option to offer a one time payment to employees in a more costly pension plan in order to entice them to move to a less costly one.  Based on the latest Act 44 distress score, Philadelphia is “severely distressed” with a funded ratio of 45%–$4.8 billion in assets and $10.8 billion in liabilities.  Philadelphia’s impact on the overall aggregate health of the state’s 3,000 municipal pension plans can’t be overstated: with Philadelphia in the mix, the funded ratio of all plans is 65%.  Remove Philly’s pension financials and the aggregate funded ratio rises nearly 20 percentage points.

Based on our 2009 report, Philadelphia’s funded ratio has dipped from where it was and obviously officials are looking for solutions.  That’s why the pension board is debating switching employees over via the cash incentive.  According to the article “If all 33,000 members in [the more costly plan], including retirees and active employees, were to switch over, the city would reduce its $5.9 billion unfunded liability by $1 billion, according to an actuary report. The cost for the cash incentive to switch over would cost the city $514 million.”

New Department Will Spin Off Part of Existing One

In the 2017 City operating budget is a proposed new Department of Mobility and Infrastructure.  If approved, it will have 4 full time positions and a budget of $439,000.

Last month when the budget was first submitted to the oversight board we wrote that within the Department of Public Works the Bureau of Operations has a Division of Traffic Operations that has responsibilities quite similar to that of the proposed Department and noted that the headcount of the former was falling while the latter was rising.  Based on a news article from yesterday it was noted “The administration is creating a Department of Mobility and Infrastructure to improve transportation systems citywide. [The Mayor] said he intends to hire a director and move three Department of Public Works staffers into the new department.”

Pittsburgh Has Host Fee Agreement for 2017

There is a report in the news media stating that Pittsburgh has come to an agreement with the Rivers Casino on a 2017 host fee payment of $10 million, with a promise that Rivers will pay the entire amount, even if the General Assembly enacts a fix for the host fee that results in a payment going forward that results in a lower amount for the City.

In noting the decision the Mayor noted “Ten million dollars is a lot of positions in the budget — it’s over 200 positions in the budget…Obviously, after reducing our workforce by 25 percent [in recent years], a further reduction of that magnitude would take away from our ability to provide services to our people.”

For this coming fiscal year (beginning January 1st) the City is budgeting for 3,131 positions.  If the Mayor meant that the 25% reduction was measured from the proposed 2017 total, one would have to go back to 2003 when the budgeted payroll was 4,337 positions, prior to the layoffs that proceeded the entrance into Act 47 and prior to the legalization of slots.  That’s roughly a 28% decrease in headcount. On a per 1000 person basis, in 2003 the FTE was 12.9 and in 2017 the FTE would be 10.2, a decrease of 21 percent.  Based on the 15 years of audited data 2000-2015 on budgeted positions, only two times has the City had a decrease of more than 100 budgeted positions (2003 to 2004, down 637 positions, and 2005 to 2006, down 321 positions).

The September decision also severed host fee language for counties, including Allegheny County, which under the law received 2% of the Rivers gross terminal revenue, but no guarantee of a dollar amount.