PMRS Wants Details ASAP

Under Act 44 of 2009 Pittsburgh had to get its underfunded pensions to 50% funded (enough assets to cover 50% of accrued liabilities) or face a state takeover by having its pensions turned over to the Pennsylvania Municipal Retirement System (PMRS). As of now, every pension plan administered by PMRS has ended up there voluntarily.

The head of PMRS recently saidthe organization"is concerned about the financial health of Pittsburgh’s pensions and how a takeover could affect the agency’s $1.5 billion in assets" and that officials "are not going to do anything to jeopardize the assets for our (nearly) 4,000 retirees." With a decision from another state pension agency due in September as to whether the City met the Act 44 goal, PMRS would be responsible for quickly folding Pittsburgh into its pension system. So either the City begins turning over data and documents or there might have to be a delay via state legislation should the takeover go into action.

We pointed out in a Brief last year (Volume 10, Number 57) about how a takeover would change PMRS’s balance sheet. As of 2009 audited data, PMRS had a surplus with assets exceeding liabilities by $88 million. Pittsburgh had unfunded liabilities of $650 million, meaning a "new" PMRS balance sheet would reflect a negative balance if Pittsburgh’s pensions were lumped together with PMRS’ current plans. In addition Pittsburgh had 1.3 retirees for every 1 active member, while PMRS had 0.39 retirees for every 1 active member.

In that same piece we wrote "it will be interesting to see the reaction of the PMRS board and other member municipalities to the way Pittsburgh’s plans are treated since any action affecting Pittsburgh’s plans will have significant effect on the aggregate health of the PMRS system." That reaction is apparently forthcoming some three months after the late-in-the-game bailout plan by City Council.

Pension Protectionism?

Was part of the motivation for avoiding a state takeover of the City’s pensions to preserve the jobs of the employees that handle those pensions? We may never know for sure, but a newspaper article over the weekend certainly had to raise some questions about that possibility.

To begin with, the piece pointed out that with twelve total employees, administrative costs, and separate attorneys the City’s pension system (a system that contains three separate plans for police, fire, and non-uniformed employees) is much larger than the office function at Allegheny County, a system with 7,300 actives to Pittsburgh’s 3,300 actives.

The City Controller, who was instrumental in putting together an alternative aimed at avoiding a state takeover, was more pointed in his view of the matter: "I don’t know that we need four lawyers [advising on the city pensions]…That doesn’t make a lot of sense to me…The city’s [pension] situation is so serious that every effort to contain costs has to be looked at. We’ve got to have more consolidation of those staffs."

If the City is to be taken over-it is still a possibility once the actuarial numbers of the New Year’s Eve plan are put together that the "infusion of value" did not meet the minimum 50% funded ratio-it will end up going to the PA Municipal Retirement System (PMRS). PMRS has 26 total staff members administering over 900 plans from various municipalities with 8,400 active employees. The total assets are valued at $1.5 billion. They would assume control over the City’s three pension plans with $339 million in assets. While the head of Pittsburgh’s fire union (who is also on the City’s pension board) intimated that the City pensions require attention seven days a week, a PMRS staffer covers 323 actives while a Pittsburgh pension employee covers 277. The administrative cost comparison, as much as can be derived from the article and PMRS financial statements, is slightly in favor of the latter at $380 per active to $391 per active in Pittsburgh.

Nevertheless, PMRS and the state will have some time to think about how they could handle Pittsburgh’s plans should that come to pass. But they won’t get any help from the City, since the article noted "the city’s Comprehensive Municipal Pension Trust Fund board…met [last week] but did not release a year-end balance for the fund, for fear that any figures released might be used to justify a state takeover of the city’s pensions". Whose best interests are at heart in this scenario?

Will Leased Parking Garages be a Tax Shelter?

Pittsburgh is contemplating a lease of its publicly owned parking to the high bidder for a sum of $452 million. The lease of nearly 18,000 spaces in garages or lots and on-street metered spots owned by the City of Pittsburgh and the Parking Authority, if consummated, will alter the concept of public property.

 

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Pittsburgh’s Pension Solution: Between a Rock and Hard Place

In last week’s Policy Brief (Volume 10, Number 37) we showed that the proposal to lease Parking Authority facilities as a means to raise $200 million for Pittsburgh’s pension funds would require-at a minimum-a near doubling of the cost to park at the lessee’s garages, lots and meters.  Factoring in inflation, the hikes in cost to park necessary to make the lease a break even situation for the lessee could exceed 100 percent in four to five years.  Clearly, there is a high probability such large increases in parking rates at the Parking Authority’s spaces will be a major deterrent to parking in the City.  Many businesses would suffer, creating further, and possibly irreparable, economic damage to Pittsburgh’s already beleaguered private sector.  And that in turn will reduce the City’s tax base, something it can absolutely not afford.

 

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Taxing Higher-Ed

Congratulations must be extended to the City’s college and university community: they are the sole remaining group to be targeted by the Mayor’s new fee structure aimed at raising $15 million per year for pensions. Gone are the plans for taxing hospital admissions, all day parking, and water use by large non-profit organizations that were mentioned in the amended Act 47 plan.

That leaves the 1 percent "college education privilege tax" as the remedy-obviously at 1 percent it would hit students at different rates depending on their tuition bills. That sort of throws the notion that this is a fee out the window: a fee would be flat based on the consumption of some type of service. This would certainly be brought up in a court challenge on the matter, since the Mayor and the Act 47 team agreed that "legally enforceable fees and charges" be levied in order to fund the pension shortfall. The City’s likely line of argument would be that since the local tax code does not prohibit a "college education privilege tax" then the City would be free to levy it-sort of like the tax on un-metered parking that we discussed in previous publications-and the pensions are in such bad shape that this is a necessary levy.

Here’s what should happen: The City, Act 47, and/or the oversight board should hire a consultant to determine with precision how much college students generate in City taxes versus how much they consume or burden City services, down to the dollar amount. It is entirely possible now that they are producing a positive net impact for the City. Throw in the employees and administration of the colleges and universities and the net benefit may be even bigger.

But don’t look for that to happen: it is much easier to for the City to continue to demonize the exact institutions that they constantly claim boost the City and the region’s fortunes and provide stable growth.