Budget help for city could come with catch

Philadelphia is on the verge of finally getting the emergency budget help from state lawmakers it so badly needs, but with a huge catch: If the city does not cut pension expenses immediately, the fiscal assistance will vanish.

Newly amended legislation that could clear the state Senate as early as today would give Mayor Nutter the authority to temporarily raise the sales tax and defer pension payments, measures that would save $700 million over the next five years and prevent mass layoffs and deep cuts to basic services such as sanitation and criminal justice.

In exchange, the bill would demand that the city cut the retirement benefits of future employees 25 percent, while capping the benefits of existing workers at current levels.

The legislation, which is fiercely opposed by city labor leaders, would represent an unprecedented state intervention into Philadelphia's dealings with its municipal unions.

The bill, as drafted, would "all but eviscerate collective bargaining," said Deborah Willig, a leading labor attorney who represents public-employee unions across the state.

The bill also would require that elected officials, such as Council members, be excluded from the controversial Deferred Retirement Option Plan. The DROP ban would apply only to future elected officials, not anyone already in office.

Nutter said yesterday that he welcomed the state assistance, but he was noncommittal when asked repeatedly about the pension changes that were added to the legislation Monday.

Labor leaders, however, said they would do all they could to defeat the changes.

"It's ridiculous, it's ludicrous, and it's unacceptable," said John McNesby, president of Lodge 5 of the Fraternal Order of Police. "We are not going to devastate our pension plan."

Herman "Pete" Matthews, president of the 9,400-member District Council 33 of the American Federation of State, County, and Municipal Employees, said: "I want the city to get their money. But this is terrible, an outrage, and I'm going to do everything I can to stop it." He said the union was working with Sen. Christine Tartaglione to amend the bill.

The Senate, labor leaders said, had done a rush job, jamming serious legislation into a crucial budgetary relief bill without due diligence.

"Any time a legislative body considers pension reform, it should do so in a deliberative and thoughtful fashion. That hasn't been done here," Willig said.

Senate Republicans who pushed the changes said they wanted the legislation to address long-standing problems, not just serve as a short-term fix to Philadelphia's fiscal woes.

"I believe those reforms are necessary both to improve the long-term health of municipal pension systems in Pennsylvania and to win the support of a majority of the Senate for this legislation," Senate Majority Leader Dominic Pileggi (R., Delaware) said in a statement.

The bill's future is uncertain. The Senate could still change it, and the Democratic-controlled House would have to sign off on any pension changes that made it into the final bill.

But there were signs yesterday that the outlines of the legislation had bipartisan support. Two Philadelphia Democrats on the Senate Finance Committee, Anthony H. Williams and LeAnna Washington, voted for the bill on Monday. Through a spokesman, Gov. Rendell, a Democrat, endorsed the bill's basic framework.

"The Governor believes that a balanced approach that provides the city the revenue to meet its pension obligations, with expectations that future pension costs are contained, is necessary to win legislative approval of the taxing powers the city needs," Rendell spokesman Gary Tuma wrote in an e-mail.

Both the Nutter administration and union attorneys were poring over the revised language yesterday, struggling to understand the full implications of the sweeping legislation.

In theory, the bill would preserve unions' ability to bargain over retirement benefits. In practice, the city would face such staggering financial penalties for failing to enact the pension changes that the unions might have little choice but to accept the reduced benefits.

For instance, under the legislation, if the city's blue-collar and white-collar unions refused to accept the pension provisions, the city would lose out on sales-tax proceeds and potentially hundreds of millions of dollars in state funding. Union workers would be laid off by the thousands if that occurred.

Police and firefighters might be in an even tougher spot. Their contracts are determined through arbitration. The arbitration panel is required to consider the city's five-year fiscal plan when setting the terms of a new contract. If the arbitrators refused to include the pension provisions, the state would rescind its financial assistance, wrecking the five-year plan.

Given that, the unions will likely try to head the bill off before it can become law.

"We are going to fight it with everything we have, legally and politically," said Bill Rubin, vice chairman of the Philadelphia Board of Pensions and Retirement, representing District Council 33, the city's blue-collar union and its largest.

Bob Bedard, spokesman for Local 22 of the International Association of Fire Fighers, said: "If you are a firefighter and you get killed, under the new plan, your spouse will only get 75 percent of what they would have gotten a year before."

As drafted, the legislation would improve the long-term fiscal health of the city's underfunded pension system. Forcing future employees to contribute more to the system and limiting what benefits they will receive would help ensure the city's pension problems do not continue to grow. But the bill would do little for the pension fund's short-term health, city budget observers said.

The bill does seem to give Nutter increased leverage with the city's unions. City contracts with all four unions expired June 30, and Nutter had already been seeking pension savings in the new contracts.

"To me, it definitely strengthens Nutter's hand in dealing with the unions," said Zack Stalberg, president of the Committee of Seventy, a government-watchdog organization.

He said he viewed the pending Senate legislation as "a warning shot" to city unions, signaling state lawmakers' willingness to involve themselves in nitty-gritty local issues.

For that reason, Stalberg said, "I would urge them not to fight pension reform tooth and nail."

The pending bill's DROP provisions will not stop current City Council members from using the program, a practice that has stirred considerable public outrage.

But any future officeholder, in Philadelphia and across the state, would be excluded from DROP. The legislation also provides statewide standards and regulations for DROP programs.

State Sen. Larry Farnese (D., Phila.), who proposed the elimination of elected officials from DROP, said legal concerns resulted in the law's not applying to any current Council members. Seven of 17 Council members have enrolled in DROP since its inception in 1999, and legal precedent generally prohibits municipalities from taking away pension benefits.

City Council would be required under the bill to amend its own DROP law within six months to bar any officials elected after the law goes into effect. But, Farnese said, Council might consider a stricter law that would not grandfather in all current members.

"There's another opportunity for further reform," Farnese said. "It's up to City Council whether they want to go further."