A Spending Freeze Could Have Helped Pension Mess

Unless there are major changes in legislation pending in the General Assembly, it appears that Pittsburgh will turn the administration and management of its pension plans over to the Pennsylvania Municipal Retirement System, who will then be charged with the massive task of restoring them to health.

Because of amendments made in the Senate version, the House has to take up the bill again and the Mayor wants to get the City out of the reform package because he sees either "tax increases or [reduced] services" because the City will have to put in more money to shore up the funds. The Mayor predicts an additional $25 million (on top of the more than $40 million that represents the minimum municipal obligation) will be the amount the City will have to come up with.

But it could have been different. Imagine if the Oversight Board and the Act 47 team-instrumentalities of the state responsible for returning Pittsburgh to solvency-ordered an immediate spending freeze in 2005 and years thereafter. The actual expenditure amount in 2005 was $398.8 million. The budget has grown by 10% from then to now.

Year

Actual Spending ($, millions)

Spending Held Flat ($,millions)

Savings ($,millions)

2005

398.8

398.8

0

2006

410.5

398.8

11.7

2007

442.4

398.8

43.6

2008

416.6

398.8

17.8

2009

437.9

398.8

39.1

Holding the reins on expenditures would have resulted in cumulative savings of $112 million-not enough to fund all the unfunded liability, but plenty to set aside for annual obligations. Based on population estimates (316k in 2005, 310k in 2009), the per capita level of spending would have risen 2% from $1,262 to $1,286 in a model where spending was held constant.

A spending freeze would also force the City and its overseers to explore alternatives for service delivery (contracting out, outsourcing, etc.) and reduce employment to stop the accumulation of additional liabilities. Headcount could have fallen by far more than it has in the oversight years (3,657 in 2004 to 3,294 in 2009) and would undoubtedly gone a long way to getting the pension problem under control.