According to the website of the Pennsylvania Municipal League, whose mission is to "strengthen, empower, and advocate for effective local government", there is scheduled to be a press conference today to unveil municipal pension reforms. As we have noted in our work, going back to 2007, Pennsylvania has over 3,000 "local" plans-those covering uniformed and non-uniformed employees of counties, cities, boroughs, townships, home rule municipalities, and authorities. If the state’s 500 school districts were not consolidated into one system (PSERS) the share of pension plans concentrated in Pennsylvania as a percentage of all plans across the country would swell.
It would be a surprise if the proposed reforms to be outlined for municipal plans were to follow exactly what the Governor proposed for PSERS and the system that covers all state workers (SERS) earlier in 2013. One wonders how legislation would treat local governments who have placed their employees (almost exclusively non-uniformed) into defined contribution type plans (53 of the 298 plans in Allegheny County are non-defined benefit plans) if the goal is to move away from defined benefit plans. Age of retirement, length of service, overtime calculations, and many other areas will likely be addressed in one way or another.
Pittsburgh’s most senior member of City Council is reaching out to chief executives, City Councils, and finance officials of other cities across the state to try and band together and lobby Harrisburg for changes to pensions and retiree health care.
Call it the latest version of "Hands Across Pennsylvania" if you will. But the Councilman has to be cognizant that not only did the Mayor try this approach two years ago but that the Legislature just spent a good deal of time this past summer and fall working on a minimal step toward changing the municipal pension system. That effort fell apart when Pittsburgh asked to "go it alone" and be exempted from the legislation. Soon after public sector unions aired their objections to the legislation and the reform movement was nullified.
The Council member noted that "we are all in this together and it is only by working together that we will end this downward spiral." Why would he have any faith or confidence that other cities, many of who might have been in favor of the reforms, would be open to another overture from Pittsburgh? Or that the legislators that worked on the issue would be open to another grass roots movement?
The House could consider legislation that would prescribe a remedy for troubled municipal pensions (the degree of trouble measured by the ratio of assets to liabilities, and being under 50% is troublesome) by folding them under the auspices of the Municipal Retirement System and taking the power of administering benefits away from municipalities grouped under the System in the new set-up. There could be other reform pieces in the mix-defined contribution options, more local control, etc.-but the head of the Retirement Commission does not seem optimistic that asset sales alone, like the one Pittsburgh has proposed for parking garages, could solve the problem.
If we are to believe the published report that an analyst told the City they could "conceivably net $200 million" from leasing parking garages and lots then there could be some validity to the Commission director’s statement. Recall that earlier in the year we examined the Mayor’s proposal to sell or lease parking structures (owned and run by the Parking Authority) and take the proceeds to retire the Parking Authority’s $100 million debt and use the remainder for the pension shortfall. The last official valuation (January 2007) pegged the gap at $524 million; but recent reports show that the gap could have grown to over $630 million. An infusion of $200 million-with a hard line on liability growth-would put the funded ratio at just over 51%, just barely meeting the litmus test for pension health under the new reform model.
But that is if the analyst’s estimates are accurate and if the $200 million means after the Parking Authority’s debt is satisfied. Then too there needs to be a plan for what happens to the Authority if its debt is paid off. At that point, the City’s overall parking function would be limited to enforcement, permitting, revenue collection, and traffic adjudication. It should be wholly out of the business of trying to build and operate parking structures and lots. That could be left to the private sector.
Obviously content with the progress in merging the City of Pittsburgh and Allegheny County, the Chief Executive (along with other county officials) convened a panel on local pensions yesterday that examined what should be done with the 3,100-plus plans that dot the Commonwealth. "Should there be a statewide municipal pension fund?" was one question the Executive asked.
The answer is "it depends". If the plan is to absolve local governments completely of there liabilities, it is unlikely to happen. Philadelphia alone accounts for nearly $4 billion in unfunded liabilities, the lion’s share of the total local unfunded liability. If there is a voluntary movement to the existing PA Municipal Retirement System where there would be management of investments but local governments still make contributions, it would be possible but it would be a gradual process.
But it is not true that consolidation would allow municipalities to withstand market downturns or pressure from parties interested in increasing benefits as the Executive seemed to imply. Consider that the state’s two statewide pension plans-SERS for state workers and PSERS for teachers-have been hammered by the downturn. And since these huge plans cover so many workers the impact of rate spikes are much more widespread. We already know that both systems are set for big jumps in the employer contribution rate due to promises made by the Legislature in the early part of the decade. School districts could see a tripling of their rates. One school official noted "even though we know we are coming up to a cliff, nobody’s been willing to address that cliff ahead of time".
Strength in numbers? Maybe, maybe not.