Philly City Council balks at pension cap

For a little while, it looked like Philadelphia, which has more retired pensioners than active city workers collecting city checks, had a plan to cap the relentless rise in pension liabilities, and slow the growth of the obligation whose yearly maintenance eats nearly one-sixth of the city budget and threatens to sink the city's credit rating -- already second-worst among major U.S. cities -- and boost its borrowing costs.

But City Council has thrown the ball away, stalling movement on a bill that would extend a pension cap that's already in force for future hires among the city's lowest-paid workers, to managers and non-union workers, in advance of talks with higher-paid police, fire and white-collar staff.

"Historically, it is customary to legislate compensation package changes for exempt and non-represented workers after new contracts have been reached with the major bargaining units," City Council President Darrell Clarke's spoksewoman, Jane Roh, told me in a prepared statement.

"City Council wishes all parties well during negotiations toward new contracts that are fair for workers and for taxpayers and that keep Philadelphia competitive," she added. Come back and see us some other time.

In last year's negotiations with AFSCME District Council 33, leaders of the city's largest labor union, representing blue-collar workers, agreed to cap the city's guaranteed pension, which pays up to 80% of workers' former wages after they retire starting at age 60 (police and firefighters can retire starting at 55), so it now covers only the first $50,000 an employee earns in his or her best-paid career year.

For income above that, new hires for those jobs now set aside part of their pay for a private-sector-style savings plan, whose value rises and fall with securities markets. The pension on their first $50,000 remains guaranteed, with taxpayers standing behind those checks in case pension investments aren't profitable.  

Most District 33 workers are paid less than $50,000. But union wages rise, most years. So capping the total could save the guaranteed-pension fund money in future years the years -- millions, then billions. 

Indeed, the move put Philadelphia, with its liberal-Democratic-dominated government, ahead of the conservative Republicans who control Pennsylvania state government: State GOP leaders have been unable to deliver a bill with a similiar $50,000 limit to Gov. Tom Wolf, who has offered to sign it.

(Of course Philadelphia is in a deeper hole, with only around 40 cents in its pension fund for every $1 it will need to pay retirees. The state fund is more like 60 cents.)

The job was only partway done, however.

Mayor Kenney's administration had hoped Council would approve similar limits on non-union, management and elected officials. That would make for a stronger moral case in talks with the higher-paid police, firefighters' and white-collar AFSCME District 47 leaders this year.  

But Clarke's office couldn't quite bring itself to pull the trigger on legislation that would set the $50,000 limit for future managers, non-union workers, and elected politicians, too.

There's been a lot of political back-and-forth. Kenney last year asked Council (corrected) for a bill that would have put all non-union staff, elected officials included, on a $5o,000 limit -- but also expanded use of the expensive DROP early-retirement program, which fiscal watchdogs have been trying to kill for years. Clarke pushed back with a bill that extended the limit for non-union staff, curbed DROP -- but failed to limit elected officials. 

I could lay out arguments for both Kenney's and Clarke's positions. But that would obscure the larger point: There's no deal.

People who don't want to see anyone else's guaranteed pension cut -- we're talking about people who haven't been elected or hired yet, but it's the principle of the thing -- are happy about that. 

But that won't make it any easier for police, fire or higher-paid civilian workers to accept the pension limits on future hires that now apply to sanitation workers and corrections officers.  

Why should they run the risk of letting their younger brothers and sisters rely for part of their retirement pay on fickle stock and bond markets, if Darrell Clarke won't make his better-paid future Council compatriots take the same risk? 

It won't keep the city's precarious lower-investment-grade credit rating from taking another hit. 

More likely, the city's lenders will see it as a sign that Philadelphia bonds are likely to be a riskier bet than, say, Boston's -- boosting what taxpayers will have to pay next time the city borrows money, at a time when U.S. rates are already primed to go higher.

It will make Clarke and the city's other elected officials more popular with the next generation of higher-paid city workers: Their pension guarantees, like those enjoyed by current city workers, will face no ceiling.

Pension costs will keep rising with wages, at city taxpayers' expense. Too bad the city's revenues aren't keeping pace.

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