Act 47 overseer says $495M unfunded liability puts finances at risk in Pittsburgh
Pittsburgh's fiscal recovery plan includes a strategy to deal with nearly $500 million in retiree benefits, a liability that exceeds revenue collections and is poised to get worse before it gets better.
The city carries a $495 million unfunded liability for “other post-employment benefits,” primarily retiree health benefits for police officers and firefighters. Commonly referred to as “OPEB,” the legacy costs are annually covered on a “pay-as-you-go” basis, about $20 million to $25 million in recent years.
The proposed five-year update to the city's state oversight plan, under a program called Act 47, recommends continuing to squirrel away $2.5 million each year in a trust fund to handle uncovered costs and future payments.
Dean Kaplan, a coordinator of the Act 47 financial oversight team, said OPEB liabilities threaten city government's long-term financial health. Even a small but growing trust fund helps, he said.
“Doing more now makes the overall long-term ability to keep up with the benefits more manageable,” he said. “Otherwise, they just keep getting larger to the point they're unsustainable.”
The fiscal overseers addressed OPEB in 2004, when the initial recovery plan eliminated retiree health coverage for new employees. An update in 2009 established the trust fund.
Tim McNulty, spokesman for Mayor Bill Peduto, said the administration supports the way the Act 47 proposal handles the liability.
“It's a big part of the legacy costs the city's starting to tackle through the Act 47 plan,” McNulty said. “We took the first steps a couple years ago, and we'll continue making them as we go.”
Eric Montarti, policy analyst with the Allegheny Institute in Castle Shannon, said because the city decided to eliminate retiree health care coverage for new employees, the liability will max out — eventually. OPEB liabilities will grow over time as employees eligible for benefits retire, compounded by increased life expectancy and growing health care costs.
From 2006 to 2012, the liability increased by about $175 million, according to the Act 47 plan.
“The amount is still growing, because you still have people that are employed with retiree health care benefits,” Montarti said. “As they retire, you're paying that out.”
By 2031, annual OPEB costs are expected to peak at about $29 million, before tapering off, according to a report filed with the state in 2012. Kaplan said the liability is likely to end in three to four decades.
Henry Sciortino, executive director of the city's Intergovernmental Cooperation Authority oversight body, said overseers support continued use of the trust fund and paying down the liability, “without tipping the balance of having to manage all the other legacy issues, as well as capital improvements and operational expenses.”
Controller Michael Lamb said Pittsburgh is unique in having the trust fund. Governments in Pennsylvania aren't required to stash away money to pay for retiree health care costs the way they are for pensions, Lamb said.
“We are probably one of the few larger cities in the country that have this problem that are attempting to fund it, even though we're funding it at a very small scale,” Lamb said. “We would do more if we could, but we're doing the right thing by trying to pre-fund now for when the bigger bills come in the future.”
Melissa Daniels is a Trib Total Media staff writer. Reach her at 412-380-8511 or firstname.lastname@example.org.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Owner of Penn Hills tombstone business pleads guilty to swindling the bereaved
- Carnegie Mellon University’s Speck device monitors indoor pollution
- New Castle-area racino remains in limbo
- ‘Swing Night’ has feel of Prohibition-era dance hall
- Shortfalls sabotage promise of union retirees’ pensions
- 17 Pennsylvania veterans inducted into Hall of Valor
- Mt. Lebanon native, Iraq war hero’s action goes unrewarded
- Pa. woman charged with forging docs to claim she was an attorney
- School choice tax credit expansion bill touted
- Scaife additions to elevate status of two museums
- Brookline 12-year-old crashes mother’s car