Surveying the Pension Landscape in Allegheny County

Allegheny County is home to nearly 300 pension plans that cover the gamut of local government employees: from police officers and firefighters to bus drivers, clerks and garbage collectors, from elected and appointed officials to various white- and blue-collar classifications.  Not counting school employees (who are part of a statewide pension plan), the local government pension “system” in the County covers more than 18,000 active workers and pays out benefits to over 14,000 retirees and/or their beneficiaries.


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Council’s Last Minute Pension Funding Plan Raises Many Questions

As the proverbial clock moved close to midnight on December 31st Pittsburgh City Council finalized a plan it believed would be sufficient to avoid a state takeover of the City’s underfunded pensions. Instead of a long term lease of assets that would have produced a lump sum of upfront cash for the pensions, the Council’s plan promises to dedicate thirty years of parking tax revenues along with what the City already pays in as its minimum obligation to the pension system.

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What is Council Really Afraid Of?

After witnessing the desperation of City Council this week, we have towonder what can be so frightening about the state takeover of thepensions. If they have to boost annual contributions from the parking tax to $27 millionto satisfy the 50 percent requirement, then in addition the contributionthey must make to continue improving the funding ratio and to keep upwith payments from the funds will boost annual contributions to $100million. That is the number Council is so afraid of if the state takes over the funds.

In effect, the Council is passing a bill requiring the City tospend what it would have to spend if it were taken over by the state.Something the Cityshould have done years ago without the threat of atakeover.

The question remains: the bill being passed is not anenforceable contract. What is to prevent a new Council three yearsdown the road from reneging on the obligation by passing a new law orrepealing the bill about to be passed? And that goes to the firstquestion about what Council members are so afraid of in a statetakeover. Under state management the higher payments would have to bemade. Not under state control, the City would start wriggling to getoff the hook.

Council’s first plan of the week was to generate $900 million over30 years while the latest plan is expected to produce $700 million.The executive director of PERC has indicated he was not confident that Council’s $900 million plan would be adequate. What will the executive director now say to this latest scheme Council expects to vote onat 11PM on December 31st? Why should the state have any confidence inCouncil’s promises?

What Doomed Council’s Second 11th Hour Plan

OK readers, grab your scorecards.

After a three hour session, City Council passed a plan to boost the pension fund to 50% by using the future revenue stream of the Local Services Tax (LST) the $52 tax that falls on every person who works within the City’s limits. This replaced the plan (let’s call it Council plan A of December)that would have used parking meter revenues as the pledged source to get the funded ratio of pensions up to the legislatively acceptable level under Act 44. The Mayor did not like that one, so soon after, the LST plan (that would be Council plan B of December) was put together and then that was scrapped in favor of dedicating a portion of parking tax revenue to the pensions (yep, Council plan C of December).

What happened to the LST plan (B), you ask? Here’s likely the answer. Act 222, the law that originally raised the tax from $10 to $52 and renamed it the Emergency and Municipal Services Tax from the Occupational Privilege Tax and Act 7, which subsequently renamed the tax the Local Services Tax, contain language that restrict the use of the tax.

Section 22.6 of Act 7 states "any municipality deriving funds from the local services tax may only use the funds for (1) emergency services (2) road construction and/or maintenance (3) reduction of property taxes (4) property tax relief through a homestead or farmstead exclusion". The act further states that 25% of the money must be used for emergency services such as police, fire, and medical services.

Using the LST revenue stream as a pledge to fund pensions was not going to fly. So the next act was to identify another revenue source, and that’s where the parking tax revenues come in. Right now that tax generates about $44 million for the City’s general operations, and dedicating $13 million as is the plan would require cuts or another revenue source to fill the hole.

A Blessing or a Curse?

On the subject of City Council’s latest attempt to craft a pension solution that averts a state takeover in two days by using dedicated parking meter revenue over the next three decades, there are dueling news reports over just how supportive the head of the Public Employee Retirement Commission (PERC) was of the plan.

One print report stated "council members last week consulted the state about dedicating future revenue streams to the fund. The concept won approval of [the] executive director of the state Public Employee Retirement Commission, the agency that enforces pension laws."

Another print report quoted the director as saying "It’s too late…even if they got $500 million next year, it wouldn’t change the takeover, unless the General Assembly changes the law." The law in question is Act 44 of 2009, the statute that dealt with municipal pensions and contains the specialized provisions for Pittsburgh.

Obviously there is a big difference between the original lease proposal, which would have given an up-front lump sum payment to show up on the audited books of the pension funds, and a dedicated revenue stream over a thirty year time period. There is apparently a big difference as to how convinced one official is of carrying out the latter plan.

What Will a State Pension Takeover Mean for Pittsburgh?

“A City of the Second Class that is determined to be in Level III distress based upon the required actuarial valuation reports for a plan year beginning on January 1, 2011, shall transfer all existing benefit plans established by the City to the Pennsylvania Municipal Retirement Board solely for administration…Pension benefits and eligibility requirements shall continue to be subject to collective bargaining”-Act 44 of 2009, Section 902C

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Is Pittsburgh’s Pension Solution Local or Not?

That’s the question that needs ananswer the day following the Mayor’s inauguration ceremony at which, when talking about how to close the gap between the assets and liabilities of Pittsburgh’s pensions, he said "our options locally are extremely limited".

Recall that just a few months ago the Mayor practically begged for independence when it looked like the state was moving toward a modest reform of municipal pension plans. Wanting a "chance to solve this locally" by leasing/selling parking garages, the bill was opened to get Pittsburgh out and the reform provisions were watered down to the point of being ineffective.

So which is it? On the one hand we see the Mayor wanting the supposedly "pain free" options of a boost to the $52 Local Services Tax (levied by a municipality on anyone who works within the municipality) or a way to wring money out of non-profits. Even if the state were to entertain a request from the City-after having been told they were going it alone on pensions-and the $52 tax were to be increased, they would likely permit it across the state in all municipalities, thus increasing taxes on City residents that the Mayor says are taxed enough already. And the non-profit community cannot conjure up money for the City without curtailing investment or cutting services to the City.

Maybe the Mayor has received initial numbers on how much the parking garage deal would net and is not happy. Remember that the City has to show the state that the pensions are at least 50% funded by 2011 in order to avoid a takeover under the provisions of the current legislation. The City wanted to meet that threshold by turning the garages over to the private sector-and the state needs to honor their decision.

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.


Actual Spending ($, millions)

Spending Held Flat ($,millions)

Savings ($,millions)





















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.

Pittsburgh Encounters Pension Reform and Doesn’t Like It

If the health of Pittsburgh’s three pension plans doesn’t soon improve and if pending municipal pension reform legislation becomes state law, the City will see its oversight and administration of the plans transferred to the state and all future employees will become members of a new, uniform system of pension recipients.


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Parking, Pensions, and Paths to Reform

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.