Wednesday, September 17, 2014
Inquirer Daily News

The Pension Blob

This is the second installment of the "Philadelphian Horror Story" series, in which we tell you about the monsters lurking in the city's budget.

The Pension Blob

This is the second installment of the "Philadelphian Horror Story" series, in which we tell you about the monsters lurking in the city's budget.

Beware the Pension Fund … It Eats You Alive!

Of all the fiscal problems facing the city, it’s the under-funded pension fund that threatens to eat the rest of the budget whole.

Watch the pension blob expand below. It goes from eating $195 million of the budget in 1996, to $346 million in 2006, to $629 million next year:

 

As the city spends more on pensions – essentially paying for services rendered in the past – it has less available to spend now.

How did this happen? Unlike the original, the pension blob did not land in Philly from outer space. Over many years, elected officials promised retirement benefits to city employees, but put off paying for them or asking for sufficient worker contributions. Maybe they figured they wouldn’t be around when the bill came due. But the monster they created got bigger after the 2008 stock market crash, and now it’s out of control:



 

Many cities are dealing with pension blobs, but Philly’s is worse than most. A 2011 study by the Center for Retirement Research at Boston College found that Philly’s pension fund had the seventh-lowest funding ratio of 97 cities studied.

It’s important to note that this doesn’t mean all city retirees are collecting enormous pensions. Here are the average annual pensions for employees of different unions. And remember, cops and firefighters aren’t eligible for Social Security on top of their pensions:



 

The average across all 30,000-plus retirees, as of last summer, was $18,363.

How to Deal with The Blob?

There’s not much the city can do about the blob in this year’s budget, unless it wants to either raise taxes or cut elsewhere, and make a larger contribution to the pension fund. In the long term, the city can:

  • Feed the Blob, by selling off a big asset like PGW and using the proceeds to fill the funding gap.
  • Fight the Blob, by changing the pension plans – though it needs to win any changes as concessions in union negotiations. So far, the Nutter administration has made the pension plans for police and fire unions less generous and more affordable. But it has not struck new contracts with the non-uniformed unions, who don’t believe workers should suffer because of mistakes made primarily by politicians.

And so the Blob continues to grow …

(Source for Graphs: City Law Department)

About this blog
Every year, city government spends slightly more than $4 billion. Where does all that money come from? More importantly, where does it go? Are we getting the most bang for our tax buck? “It's Our Money” is a joint project between Philadelphia Daily News and WHYY, funded by the William Penn Foundation, designed to answer these questions.

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Holly Otterbein:
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