Pittsburgh given more time on pensions
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HARRISBURG -- In a surprise move, state House leaders have given Pittsburgh Mayor Luke Ravenstahl a little more time to exempt Pittsburgh from a bill that would make sweeping, and potentially costly, changes to many underfunded municipal pension systems.
House Democratic leaders announced yesterday that a vote on House Bill 1828 -- which would allow Philadelphia to increase its sales tax from 7 percent to 8 percent, as well as permitting a state takeover of Pittsburgh's ailing pension system -- would be postponed from Tuesday until perhaps Thursday.
Until now, House leaders have been under great pressure from Philadelphia Mayor Michael Nutter to vote as soon as possible on the bill, which Philadelphia needs to ease its severe fiscal problems. Philadelphia officials have said that if the bill isn't signed into law by next Friday, there would be "catastrophic" harm to the city, such as laying off 3,000 workers, including up to 1,000 police, plus closing health centers and reducing trash collection.
But Brett Marcy, a spokesman for House Majority Leader Todd Eachus of Luzerne, said yesterday that House Bill 1828 -- as recently amended by the Senate -- would have major effects not just on Pittsburgh and Philadelphia city governments, but on police and fire unions in those cities and on as many as 3,100 municipal pension systems in the state. So more time is needed to examine the details of the bill and a vote can't be held Tuesday, as originally planned.
"It's not enough just to move this legislation quickly," said House Speaker Keith McCall. "The legislation needs to be done right, with the goal of solving the pension issue" not just for the two largest cities but for many smaller ones also.
Mr. Ravenstahl feared that if Pittsburgh's pension system is seized by a state pension agency, Pittsburgh could be ordered to increase taxes so it could increase its contributions to the pension system, which is now only 31 percent funded.
Mr. Ravenstahl is pressing to have Pittsburgh exempted from House Bill 1828, and instead be given two more years to increase its pension contributions, such as by leasing municipal parking garages.
"Pittsburgh's concerns are certainly something we have heard loud and clear," Mr. Marcy said. "But this bill isn't just about Pittsburgh and Philadelphia. It has the ability to impact thousands of pensions across the state. There is urgency from Philadelphia to act on this bill and we recognize that, but we need to get it done right."
Police and fire unions in both large cities were also upset about the bill, which could cap retirement benefits for current workers and reduce them for new hires.
Mr. Marcy wouldn't say specifically what changes the House will make to the bill. But the changes will mean the bill must go back to the Senate for additional action.
Mr. Nutter was hoping the House would approve the bill with the wording the Senate has already approved, but that isn't going to happen. The longer the bill bounces back and forth between the two chambers, the longer Philadelphia will have to wait for the fiscal relief it needs.
Mr. Ravenstahl said yesterday that legislative leaders have agreed to support an amendment to the pension reform bill. Coming on the heels of the decision by local House Democrats to support his bid for a reprieve,Sen. Jane Orie, R-McCandless, agreed to back that amendment in the Senate, he said.
"We really think now with [Sen. Orie's] support and the support we got . . . , it's going to be supported in both caucuses," he said, referring to the Democrats who run the House and the Republicans who run the Senate. "We're very excited and thankful to the entire legislature for their leadership."
He also thanked City Council President Doug Shields and Controller Michael Lamb, who have backed his effort.
"It gives us the opportunity that we asked for, for two years to solve this problem locally," the mayor said. "It means a more manageable solution that won't burden the city with significant tax increases of significant service cuts."
He said he has also won agreement from key Philadelphia leaders to the amendment, provided it does not jeopardize that city's receipt of a 1 percentage point boost in its sales tax, which is also in the legislation.
"We do anticipate that the Philadelphia delegation will follow the lead of our senators and representatives out here."
Mr. Ravenstahl's pension blueprint just might get it to the crucial 50 percent-funded level by the end of next year -- if the city's assumptions of robust investment returns, a big windfall from a parking garage lease, and very slow payroll growth are true, said state Municipal Retirement System Secretary James B. Allen.
He crunched the city's numbers at the request of state legislators, who are considering the request for a two-year reprieve from a state takeover of the city's pension fund. The mayor wants time to get the fund up from 31 percent of its ideal funding level to above 50 percent, and plans to do that by raising at least $200 million through a long-term lease of parking garages and by plunking $60 million a year into the account.
Mr. Allen said that if the city can raise the $200 million, consistently earn 8 percent on its investments, keep salary growth very low and reduce the cost of managing the fund, then the city could hit its target.
The state retirement system only assumes a 6 percent return on its investments. Under House Bill 1828, the city would only be allowed to assume 7.5 percent earnings after a pension fund takeover. Mr. Allen would not say whether an 8 percent return is reasonable.
City Finance Director Scott Kunka maintained that an 8 percent return is "very reasonable." He said a consultant's report, soon to be released, shows that if the city leases parking garages and perhaps meters, "$200 million is very doable."
In order for the city to put that much into the pension fund, it would have to get more than $300 million, because the Pittsburgh Parking Authority would have to pay off $108 million in debt on its garages.
A garage lease would likely require City Council approval, where it could face vigorous debate. "The long-term lease of the garages will drive the cost to businesses in the city up," said City Councilman Patrick Dowd, because a private operator likely would raise rates.
Mr. Allen said he could not vouch for Mr. Ravenstahl's estimate that a state pension takeover would force the city to put $75.9 million into a merged pension pool next year, up from $46 million this year.
"The clear statement I can make is that this legislation does not impact the city's minimum [pension contribution] in 2010 at all," he said. "The first time that this legislation would force any additional funding would likely be 2013."
Mr. Kunka said the administration's interpretation of the bill is that it would jack up the city's pension obligations sooner than that, but regardless of the time frame, "$30 million is a lot of money to come up with."
First Published September 5, 2009 12:00 am
