State focus should shift to municipal pension trouble
HARRISBURG - The spike in public pension costs for state government and school district employees has been a main topic of conversation in the legislative hearings on the state budget that wrapped up last week.
These costs are seen as crowding out other priority areas of state spending and leading to school property tax hikes at the local level.
Yet not as much mention has been made during these hearings about the other public pension problem - the hundreds of municipal pension plans that are considered financially distressed, underfunded and at risk of not meeting commitments to retirees.
The conventional thinking at the Capitol has been to tackle the state pension problem first and then address the municipal one.
State Auditor General Eugene DePasquale said last week that strategy doesn't make sense because deficit-ridden pension plans could push some municipalities into bankruptcy.
He issued a report showing that 573 of the 1,218 municipal pension funds in Pennsylvania are distressed and underfunded. Scranton, Hazleton and Dunmore are among the 25 municipalities with the largest pension deficits.
Scranton has a combined deficit of $113.6 million for its three pension plans, Dunmore has a combined deficit of $5.6 million for its three plans and Hazleton has a pension deficit of $28.4 million.
"Some pension plans are so underfunded that promised retirement commitments are at risk," said DePasquale. "If they fail, the cost will be passed onto the taxpayers."
The problems will get worse in 2015 when new accounting standards for government financial reporting go into effect.
"The accounting changes that are coming will make it more expensive for municipalities to borrow money and increase pension contributions, thus draining more money from municipal services and triggering higher property taxes," said DePasquale.
Municipalities will, for the first time, have to report their net pension liability on their balance sheet and this will affect the bottom line, said DePasquale spokesman Barry Ciccocioppo. They can no longer report it as a separate note.
The auditor general is recommending a number of steps to address municipal pension deficits, including not counting spikes in overtime pay in determining pension benefits, putting new hires in a defined-contribution plan and taking steps to consolidate municipal plans under a statewide system.
He proposes providing additional state aid to municipalities with distressed pension plans providing they meet certain requirements.
The auditor general distributes state aid to municipal, police and fire pension plans under a 1984 state law. The revenue comes from a 2 percent tax on premiums for casualty and fire insurance sold in Pennsylvania by out-of-state insurance companies.
The sponsor of a bill to curb municipal pension benefits for future paid police and firefighters said he agreed with DePasquale on the need for immediate action.
The measure by Rep. Seth Grove, R-196, York, would put those new hires under a cash balance pension plan. This would base pensions on employer and employee contributions and an employer-guaranteed interest credit.
(Robert Swift is Harrisburg bureau chief for Times-Shamrock Communications newspapers. firstname.lastname@example.org.)