Is the State About to Disapprove Pittsburgh’s Pension Plan?

Is the State About to Disapprove Pittsburgh’s Pension Plan?

Last New Year’s Eve, City Council enacted an 11th hour scheme-with the ICA’s blessing-designed to prevent a state takeover of the City’s pension funds. That plan depends heavily on using parking tax revenue to create an income stream for the pensions over the next 30 years with a purported present value sufficient to boost the pension’s funding ratio to 50 percent.

As we have noted previously, it is not clear the agency charged with evaluating whether or not the City’s plan is adequate will approve the scheme. For one thing, legislative promises to allocate parking revenues sufficient to create an adequate funding stream are not permanently binding. Unlike a loan or bond debt, there is no contractual arrangement with any party forcing the City to carry out the promise. A future Council could simply ignore the 2010 legislation or rewrite it. Beyond that, the evaluating agency must decide if any proposed income stream is as good as cash on hand in meeting the 50 percent funding requirement.

Moreover, the fact that pensions are boosted to 50 percent funded still leaves the enormously difficult problem of getting them to funded ratios that can be viewed as safe or satisfactory, say 80 percent or higher.

There seems to be a fairly high probability the evaluating agency will deny the Council scheme on the grounds that it is inadequate or on the grounds that the behavior of Council vis-à-vis the Mayor in addressing the state’s ultimatum over the past year leaves a lot of questions about the motives and ability of the City to fulfill the requirements laid out by state legislation.

In that case, the state will take over Pittsburgh’s funds and will force the City to raise the annual contribution sufficient to boost the funded ratio and most likely require a lump sum payment immediately. Ironically, the payment amount might not be a great deal more than the Council’s parking tax allocation. The difference is that with the state mandating the payments, the City would have to comply or face possible sanctions.

Too bad the Mayor’s plan to lease the Parking Authority assets was so summarily and quickly dismissed by the Council. Some effort to modify the plan but that would have left over $300 million (the proposal was for $400 million) on the table would have been a tremendous step forward to fiscal sanity for the City. The implacable attitude of Council toward any and all privatization is unseemly and harmful to the City’s future well-being.

This is the same City extolled in a recent Op-ed column by Stephen Beschloss as a guide for Congress on how it might learn to set aside differences to accomplish great things for the American people. How utterly fatuous in view of the facts.