Governor Wants Pension Reform—Good Luck with That

Looming like the sword of Damocles are the huge increases in state spending needed to keep state pensions adequately funded-there is a $37 billion gap between assets and liabilities. This has prompted the Governor to announce that pension reform will be a priority on his to-do list.

And what is the Legislature with its lucrative pension plan going to do about pension reform? Little or nothing would be a good bet. Kick the can down the road or look around for a nuisance fee or tax to make a small dent in the deficit. But meaningful change? Not until the roof is caving in. The legislators gave themselves a big boost in 2001 and are unlikely to take money from themselves. Public sector unions will not agree to any reforms that touch their benefits. So where is the impetus to do anything serious? This problem has been known about for years and Harrisburg has chosen to study the issue to death and then study it some more.

The Executive Director of AFSCME Council 13, which represents the bulk of state unionized employees, says bluntly, "the state must continue to uphold its obligation to current employees." In other words, taxpayers should get ready for more purse pillaging. Ironically, the union leader reminded that this problem was known about ten years ago and now the bills have come due and its time to talk about raising revenue. That’s so rich it would make your hair hurt. When over the last ten years have any public sector unions ever argued for reduced government spending so more dollars could be set aside for pensions? Indeed, all we hear is that more money is needed for education, social programs, higher pay, better health care benefits, etc.

Unions will never take any of the blame for government fiscal problems nor will they voluntarily agree to help solve them. Instead, they will blame the problems on elected officials who do not have the backbone to stand up to unions and their spending demands.

The union influence combined with the self- aggrandizing motives of the legislators does not bode well for any meaningful action on pensions any time soon. The track record of the Legislature in doing anything remotely restrictive of union power and influence is not one to inspire confidence that they are on the verge doing the right thing for the Commonwealth.

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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The Proposed Pittsburgh Parking Lease: A Look at the Numbers

As the Mayor takes his case for leasing the parking garages, lots, and meters to the public he has to wonder if at least one of the interested companies will see sufficient earnings potential from a long term lease to justify an offer of $300 million the City hopes to get. This is the amount needed to cover the Parking Authority’s outstanding bond debt of about $100 million and provide $200 million for the City’s pension funds.


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City Officials Rest Easy

Here’s what the most recent actuarial valuation (reflecting data as of January 1, 2009) shows for the health of the City’s pension funds in aggregate (the police, fire, and non-uniformed funds): $334 million in assets for $989 million in liabilities. That translates into a shortfall of $655 million and a funded ratio of 34%. City officials are somewhat relieved that the liabilities did not top $1 billion, which means the unfunded liability total was about $50 million less than expected.

Don’t pop the champagne corks yet.

Comparing these numbers to the previous actuarial valuation as of January 1, 2007 reveals that assets have fallen by $41 million, liabilities have grown $90 million, and thus the unfunded liability has grown by $131 million. The funded ratio was 42% then.

Of course, the real picture could be worse since the valuation reflects the values from the start of 2009. Let’s assume that the 2009 valuation has held as of now. What does that mean for the parking garage lease plan? Recall that the City has to demonstrate that the pensions are 50% funded in order to avoid a state takeover of the funds. With $989 million in liabilities, the lease plan would have to net $160 million and, when combined with the $334 million in reported assets, the funded ratio would attain the 50% target ($494 million/$989 million).

The 50% level would save Pittsburgh from a takeover, but it would not change the fact that Pittsburgh’s pensions are still among the lowest funded in the country. In 2008 the Center for State and Local Government Excellence ranked Pittsburgh 82nd out of 84 locally administered pension plans, and found only two others with a funded ratio of 50% or lower.