Overseers caution Pittsburgh on pensions
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Pittsburgh officials should consider lowering their 8 percent earnings assumption for the pension fund, lest volatile market conditions bring a new funding crisis, financial experts told the city's overseers Tuesday.
Mayor Luke Ravenstahl's office, which is pushing for an end to eight years of state oversight, used the meeting of the Intergovernmental Cooperation Authority to tout a string of financial successes such as debt reduction, bond rating upgrades and cost control.
However, other speakers emphasized the fragile nature of the city's recovery, especially the still-precarious state of the pension fund. James McAneny, executive director of the state Public Employee Retirement Commission, said the city's expectation of an 8 percent annual return on its investment portfolio is unrealistic given market conditions.
"Nobody carries 8 anymore," he said, noting overly optimistic earnings assumptions erode the fund's financial position and create cash-flow problems.
If the pension board lowers the earnings assumption, the city would have to pump more cash into the fund each year to comply with a state funding formula. That would create other kinds of headaches for a city already struggling to find public-safety and other core services.
Later, in an editorial board meeting with the Pittsburgh Post-Gazette, authority chairman Dana Yealy said the city one day might need to reconsider the idea of selling an asset to generate a large infusion of cash for the fund.
"At some point, yes, everything has to be on the table," he said.
City council members have expressed no interest in another privatization move.
In 2010, Mr. Ravenstahl proposed a long-term lease of parking garages and meters, a deal that would have generated $452 million for the fund. City council killed the venture because of privatization fears.
Council eventually allocated more than $735 million in parking tax money to the fund over 31 years, a move that increased the funding level from 29.3 percent to 62 percent and averted a state pension takeover. Because of market performance, however, the funding level had fallen back to 58.6 percent by March 31.
The fund has three main sources of revenue--the parking tax; other cash payments, totaling more than $50 million t his year; and investment earnings, which are assumed to be 8 percent, or about $46 million this year.
A report by Gleason and Associates, an accounting firm retained by the authority, noted that the fund's annual returns have averaged only 1.9 percent over the last five years and 5.2 percent over the last 10. Mr. McAneny said a 7.5 percent annual assumption would be on the high end of an acceptable range, and city Controller Michael Lamb said he'll advise the pension board at a meeting this month to adopt 7 percent as the new figure.
"I think that would be a big step toward being removed from oversight," Mr. Lamb said.
Some city council members said they anticipate a debate later this year over whether to formally request an end to oversight. The city now has two oversight boards--the authority and the Act 47 team.
Mr. Ravenstahl hasn't proposed a timetable for ending oversight but asserts that the city has made enough financial progress to go its own way. He's also complained about the cost of oversight, which is office has calculated at nearly $10.4 million from 2004 to 2011.
City finance director Scott Kunka told the authority Tuesday that the state must enact legislation that enables the city to better control pension costs, such as the authority to replace defined benefit plans with defined contribution programs. He asked the authority, created by the Legislature, for help making the case in Harrisburg.
The pension board already lowered is earnings assumption once -- from 8.75 percent to 8 percent in 2008, Mr. Kunka said. Putting additional cash into the fund each year would require difficult decisions about how to finance other city priorities, he said, adding that investment performance is more accurately measured over 30 years than five or 10.
Relations between the city and the authority have been frosty. In the editorial board meeting, Mr. Yealy said he wants to work collaboratively with the city but believes it's still necessary to hold officials' feet to the fire on certain issues, such as implementation of a debt policy and a planning process for capital projects.
Calling the mayor's timetable for exiting oversight more ambitious than that of other officials, he said he wants to "sit down with the city over the next year or so and come to agreement" on a plan for ending oversight.
First Published August 8, 2012 12:00 am