Pa. Senate panel advances city's plan for budget

HARRISBURG - The Republican-controlled state Senate took a major step last night toward giving Mayor Nutter the tools he says he needs to avert financial "doomsday" at City Hall - permission to raise the sales tax and delay contributions to the workers' pension plan.

Nutter watched from the back of a crowded hearing room on the fourth floor of the Capitol as the Finance Committee voted unanimously to approve a bill he has been asking for all summer. He has warned that without it, he'll have to lay off 3,000 workers, shut courts and health centers, and cut back on trash collection.

The measure still must go before the full Senate - likely tomorrow - and then must be reconciled with a different version passed by the Democratic-run House.

A provision introduced by the Senate would stop a practice that some elected officials have used to enrich their retirements. It removes elected officials from eligibility for the deferred retirement option plan (DROP).

Ever cautious when dealing with Harrisburg, Nutter declined to predict when a final bill might be signed by Gov. Rendell. But with Democrats voting in lockstep with Republicans last night, it appeared Nutter will get at least most of what he wants, soon.

Last night, Nutter said his concern was that different versions of the bill could get batted back and forth in the legislature, delaying passage.

"Our main focus is on getting a final, complete vote in a form that addresses the financial needs of Philadelphia and goes to the governor's desk as soon as possible," Nutter said.

Together, the measures would give Philadelphia government an additional $700 million in revenue over the next five years, in part by deferring $235 million in pension contributions over two years.

If approved, the bill would raise the sales tax in Philadelphia by a percentage point, from 7 percent to 8 percent. The tax in most of Pennsylvania is 6 percent.

Nutter said the increase in the sales tax - to expire in 2014 - would generate $115 million a year for the city. The Senate bill requires all of that to be used to fill part of the massive hole facing the pension programs.

Senate approval of fiscal relief for Philadelphia became caught up in the summer-long battle over the state budget.

Unlike the House bill, the Senate version seeks to address not only the city's pension problems but also pension shortfalls in many communities across the state, including Pittsburgh.

The proposed legislation would freeze pension benefits for existing Philadelphia employees. It would force the city to revise its pension plan by June. The new plan would have to cost only 75 percent of what the current plan costs.

New benefits could come in the form of defined contribution programs along the lines of the 401(k) plans held by many private-sector workers. Nutter has said he would like to see city workers get a retirement plan that includes a combination of regular benefits and a defined contribution plan.

The pension measures drew immediate negative reaction last night from Bob Bedard, spokesman for District Council 47 of the American Federation of State, County and Municipal Employees, the city white-collar workers' union.

He suggested that it would hurt not only workers but also taxpayers, who may have to pay more to meet the underfunded pension plan's needs.

"Passage of this package would be an outrageous injustice to employees and taxpayers," he said in a statement. "It would punish employees and taxpayers for the purposeful or the unintentional underfunding of municipal pension plans by politicians no longer in office."

If it ends participation by elected officials in the DROP program, the bill would do what City Council has refused to do.

Six Council members are slated to collect DROP payments over the next three years and one, Councilwoman Joan Krajewski, has already collected hers.

Krajewski joined DROP in August 2004, expecting to retire because of bad health. Krajewski "retired" for one day in January 2008, collected $274,587, and returned to another term.

Former City Solicitor Romulo L. Diaz Jr. opined that voters could choose to return her to office despite DROP's requirement that anyone entering the program must retire.

The bill would not close that loophole, nor would it prevent any sitting Council members from entering DROP before their next term.

Council Majority Leader Marian B. Tasco, who has defended Council's use of DROP as fair use of a benefit that all other city employees are eligible for, said: "Whatever they do at the state level, they'll do. I don't have anything to say about it."

Tasco is one of the six members enrolled in DROP, and she has not stated whether she will seek another term.

DROP was instituted in 1999 as a way to retain valuable veteran employees while giving the city a method for planning for departures through retirement. State Sen. Larry Farnese (D., Phila.) pushed for the elimination of elected officials from DROP.

When joining DROP, employees choose a date four years in the future - police officers up to five - when they will retire. They are required to retire at that point, according to the law that created the program.

The bill would not do away with DROP. In fact, it authorizes other municipalities to create their own DROP programs and sets up rules for them.