One-time windfall in Pa. tax collection eases pressure on pension funds

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Figuring out how to pave the roads, pay the police and, most of all, fund the pensions in towns statewide just got a little bit easier.

News started reaching local government officials late Thursday and Friday that the state will pay more next year toward their underfunded pension plans. That made some positively giddy going into the weekend -- but also left many wondering how, in a time of state cuts to many institutions, they got so lucky.

It turns out that a change in the schedule under which insurers have to pay their state taxes resulted in a swelling of the account from which Pennsylvania dishes pension aid. It won't happen again, but that didn't dampen spirits in local township and borough buildings.

"Every little bit counts nowadays," said Penn Hills Municipal Manager Mohammed Rayan. When he saw that his township stands to gain more than $300,000, he was surprised. "It's like, OK, we'll run with that. Absolutely."

The change could mean little for municipalities without pension problems. But for those that do get state pension help -- and in Allegheny County that means 108 of the 130 municipalities -- it is a welcome bit of good news. The biggest winner will be the city of Pittsburgh, which will get $10 million more than it did this year.

Monroeville should benefit to the tune of $400,000. "That's a whopping increase," Monroeville Municipal Manager Timothy Little said.

Some municipal leaders initially thought the notifications must be in error. Not so, said James McAneny, executive director of the Public Employee Retirement Commission, which manages the state aid for local pensions.

He explained that the windfall stemmed from an obscure measure deep in a tax code bill.

Insurers had long paid the 2 percent tax on their premiums -- a fraction of which goes for state aid for municipal pensions -- in quarterly installments. The code change required that they pay everything up front, by the end of March, or face penalties.

The pension aid account already contained several quarters worth of payments made under the old system. Then the newly required annual payments rolled in. As a result, when the time came to divvy up the money among municipalities, the account contained nearly 75 percent more money than usual.

The law gave Mr. McAneny no choice but to split the pot among the pension-challenged municipalities according to formulas that take into account their headcounts and the depth of their need. PERC will dish out $343 million in aid to municipal pensions next year, up from $217 million this year.

Basically, for every $4 municipalities would have normally gotten, they'll instead get $7 this year.

"This is once and done," Mr. McAneny cautioned.

"The law requires that the money be put into the pension," he added. He acknowledged, though, that some municipalities may decide that the increased state aid allows them to put less of their local tax money into the pension fund next year.

Mr. Little has been wrestling with a 2012 budget that counts on $400,000 less than usual in business privilege tax receipts, due to the sputtering economy.

The state boost, in approximately the same amount, is "very meaningful. Going into the budget, it's just less money that we have to make up."

McKeesport Manager Dennis Pittman said his pension investment portfolio, like virtually every other portfolio, has suffered of late. That would normally force him to put more local tax dollars into the pension fund.

"If this mitigates my bigger payment, if it does nothing more than that," he said, "that would be great."

His city appears poised to get more than $400,000 in unforeseen aid. "That may save me from some other emergency fiscal plan," he said.

Rich Lord: or 412-263-1542


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