We've gotten used to news that cities around Pennsylvania are struggling to deal with shortfalls in pension funds for employees. Now, Allentown is considering a controversial proposal to raise taxes to deal with the problem.
Allentown Mayor Ed Pawlowski wants to increase his city's earned income tax from 1 percent to 1.4 percent, generating about $9 million that would go directly into the pension fund. He also hopes that city unions -- including police officers, firefighters, and non-uniformed employees -- will agree to concessions in contract negotiations in exchange for the tax increase. Currently, Allentown's pension fund is only about 45 percent funded.
This is different from how other major cities in Pennsylvania have dealt with their pension problems. Pittsburgh is currently debating the idea of selling parking assets to generate a one-time payment to the city's distressed fund. Philadelphia got permission from the state to defer a portion of pension payments and has pushed for changes in union contracts to reduce benefits for new hires. Neither city has considered the idea of simply raising taxes to deal with the pension problems.
The Allentown proposal seems to be a more permanent solution to the pension problem, even if it will be unpopular with many taxpayers. Both Pittsburgh and Philadelphia have essentially come up with temporary measures to get their pension funds through the current economic downtown. By increasing taxes to pay for the shortfall, Allentown will be protecting the health of its fund over the long-term by providing it with a constant stream of revenue. Of course, Philly's changes to benefits for local hires is also a long-term change, but it does nothing to help with the immediate concerns.
There is also something appealing about a tax hike because it's not a financial gimmick. People can clearly see that more money is being taken out of their paycheck, and know it's going to fund workers' pensions. That's fundamentally different from the opaque and often confusing methods used by elected officials to keep pension funds afloat. Voters can decide if they want to keep politicians in power who raised taxes to pay pension costs.