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Public pension crisis foretold for Pennsylvania

| Monday, Aug. 24, 2009

HARRISBURG — When it comes to municipal pension plans, Pennsylvania is king.

Pennsylvania has four times more pension funds than any other state, and more than one-fourth of all the municipal pension plans in the country, according to the Public Employee Retirement Commission, an agency that advises the Legislature on pension issues and oversees the soundness of local plans. The number of local plans is growing by about 30 a year.

Most of the 3,100 retirement systems, for police, firefighters or nonuniformed workers, are small. That's costly for members and taxpayers. Of 2,462 that reported administrative expenses, the cost was $36 million, or $509 annually per member.

The cost per member is $1,519 for administrative expenses for plans with fewer than 10 members, the retirement commission says, and 67 percent of Pennsylvania's local pension systems are that small.

"As a whole, it's costly," said Sen. Jay Costa, D-Forest Hills, a board member of the retirement commission.

Although the overall fiscal health of the maze of local retirement systems is in decent shape, about 70 plans — including the City of Pittsburgh's — have assets less than 50 percent of what's needed to cover liabilities, said Jim McAneny, executive director of the retirement commission.

"In the pension industry, when you're talking less than 50 percent, you're talking terminal illness," McAneny said. "The federal government classifies 60 percent as critical."

Pittsburgh has 28 percent of an estimated $899 million needed to meet long-term obligations. As a result, the city's system is slated for state takeover in legislation pending in the House.

The idea is to give ailing systems a few years of breathing room when an expected financial storm hits in 2010 and 2011, when required pension plan contributions will be based on investment values at the depth of the recession.

A key Senate bill will be introduced today, and Sen. Patrick Browne, R-Allentown, the sponsor, is considering a takeover provision.

Pittsburgh wants an exemption from the state takeover, claiming higher payments and expanded benefits would mean tax increases or job losses.

As for Pittsburgh's 28 percent ratio, McAneny said "there's just no way to describe that. It is bankruptcy, or the pension equivalent thereof."

Pittsburgh officials insist they could lease parking garages to bring in $200 million for the pension systems.

"My position has been consistent: I am willing to be part of a plan that helps Pittsburgh and its taxpayers," Mayor Luke Ravenstahl said. "I am unwilling to participate in a plan that requires massive tax increases or deep cuts to key city services without providing Pittsburgh with the true reform I have been lobbying for over the past three years.

"Pittsburgh cannot afford the so-called solution in the bills as they stand," he said. "The House bills in their current form must be defeated, amended or we must be allowed to opt out."

Jack Treadway, retired chairman of the political science department at Kutztown State University and author of a book on state elections, said the state has a history of allowing local government control.

"They like their independence, and they don't like to cooperate with each other," he said.

Pennsylvanians don't seem to make the connection between local control and cost, Treadway said.

"We may get to the point where local governments are defaulting," he said. "They don't have the resources. Maybe if we reach a crisis, it will change."

A crisis is what Brian Jensen, deputy director of the Pennsylvania Economy League of Southwestern Pennsylvania, predicts for municipal pension plans.

"It can't be stressed enough that the current recession is turning the existing pension problem into a crisis. Existing law will require municipalities to base 2011, and possibly 2010, pension plan contributions on asset valuations in place in January 2009, when markets were at their lowest," Jensen told Browne's Senate Finance Committee last week.

That's compounded by the fact that "local governments are at the bottom of the food chain," Treadway said. When federal and state governments cut programs or impose mandates, local governments have nowhere to turn, he said.

Part of the reason for the proliferation of retirement plans is Pennsylvania's fragmented local government system. Pennsylvania has 2,600 local governments and 2,000 authorities. Some municipalities have three pension plans — separate plans for police, firefighters and other municipal employees.

Whether consolidation is the best approach for municipal pension plans "is a discussion for another day," Costa said.

Now, he says, "we have a responsibility to help those that are not funded properly."

"We have to work to make sure retirees receive their benefits," Costa said.

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