A Pension System for All?

The Governor’s report on public sector pensions-which we blogged about earlier in the week-has set a lot of discussion in motion. So too have the testimonies collected by the Public Employment Retirement Commission, which was mentioned in an editorial this morning by the head of the Township Supervisors Association. Some of the presenters mentioned consolidating plans, which the Association head disagrees with, noting correctly that many of the state’s biggest plans-SERS, PSERS, Philadelphia, and Pittsburgh-have significant problems and that a solution should not "make the healthy swallow the same bad medicine as those in trouble".

We agree: in fact, in testimony we presented in 2008 to a hearing of two state Senate committees, we noted "There seems to be little interest at the state level to consolidating plans based on past discussions. It has been mentioned before, but nothing has come to pass. The problem with such an approach is that municipalities with well-funded pensions will view a merger or consolidation as a bailout of the lower-performing plans. In addition, the nationwide experience shows that it is almost non-existent for a state to assume total control and responsibility for local pension plans."

But perhaps there is another way to think about consolidation in the future which does not involve lumping the good plans in with the bad if the state were to think about the employees of the state (SERS), the employees in education (PSERS), local police, firefighters, clerks (covered by one of the 3,000 local plans administered locally or through the PA Municipal Retirement System), county employees, authority employees, etc., etc., in which enrollment in those plans is closed as of a certain future date and all new employees of the Commonwealth, its local governments, its authorities, agencies, school districts, community colleges, state universities, are enrolled in one new statewide plan with a clear employer and employee contribution mix. The existing plans would stay in place until there are no more participants in them and then the state would fully transition to the new unified plan. It would obviously take a very long time (and extends the further such a change is put off) but might be worth exploring.

Parking Still a Key Component in Pension Deal

Municipal pension reform is still hurtling forward in Harrisburg as the SenateFinance Committee has signed off on a bill that would classify pensions according to level of distress (the key measure being funded ratio) and outlines discretionary and mandatory remedies for municipalities according to health. The City of Pittsburgh, with an aggregate funded ratio reported at 28%, would fall into Category III.

There are special provisions in the bill that apply to Cities of the Second Class (Pittsburgh is the only one). For instance, the parking tax-now at 37.5% after being reduced incrementally from its 2004 high of 50% by the state reform package-would stay at 37.5%. In addition, the bill notes that if the City nets at least $200 million from a sale or lease of parking facilities then the City would be allowed to raise the parking tax to 40%. The bill then stipulates that 6.75% of the original 37.5% rate (around $2.8 million based on recent financials) and 100% of the additional 2.5% rate (another $2.8 million or so) be put toward the minimum municipal obligation that the City puts into the pension funds.

Should this plan go forward it would change the trajectory the City has been on as far as tax reform goes. Recall that the parking tax would be a maximum of 35% next year based on the ratcheting down of the tax under Act 222. The Act 47 team recommended keeping the tax at 37.5% for this coming year but wanted to use the proceeds for capital projects. And the Mayor stated that part of the parking lease or sale would be used to wipe out the debt for the Parking Authority ($108 million) and the remainder for pensions. It is not clear if the lease or sale would bring in enough to satisfy the Authority debt and reach the $200 million to enable the City to meet the minimum amount the state would want to see to trigger the additional parking tax.