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PhillyDeals: At PHA, a 'historic' pension contract

Some of Philadelphia's public-worker unions have shown they can help the city get out from under its future pension burden - if city officials sit down and bargain seriously about paying what's owed from the past.

Mayor Nutter at the groundbreaking for 600 N. Broad Street, a project with restaurateur Stephen Starr (center) and developer Eric Blumenfeld (right).
Mayor Nutter at the groundbreaking for 600 N. Broad Street, a project with restaurateur Stephen Starr (center) and developer Eric Blumenfeld (right).Read moreCLEM MURRAY / Staff Photographer

Some of Philadelphia's public-worker unions have shown they can help the city get out from under its future pension burden - if city officials sit down and bargain seriously about paying what's owed from the past.

The Building and Construction Trades Council, which represents 344 members of the Laborers and other trade unions that maintain city rentals for poor people, have signed what the Philadelphia Housing Authority calls a "historic" contract.

The deal freezes the PHA's traditional guaranteed pensions, promises to pay current workers and retirees what they are owed, and replaces the plan going forward with a worker-directed 401(k)-type investment plan, half funded by the PHA, half by the workers, and wholly at the mercy of the investment markets as they go up and down.

"I normally shy away from these," union council president Patrick Gillespie told me when I asked why his members would agree to stop extending guaranteed pensions. But Gillespie said the PHA's pension fund was in such bad shape, the unions saw no alternative.

"It was necessitated by the financial condition of these funds," Gillespie said, which are managed by the PHA, not the unions. "They had a major hole," he added, a gap of more than $80 million between assets and liabilities.

In return, the PHA agreed to pay $8 million a year into the plan for the next 20 years, so it can keep paying retirees what they already earned.

Will the PHA be an example for police, fire, sanitation, library, and other city workers? Their city-run Philadelphia retirement system is underfunded by more than $2 billion.

"The city and those unions should sit down and talk about the best decisions they can make," Patrick Eiding, president of the Philadelphia council of the AFL-CIO, told me. "If they don't talk, it'll never get resolved."

How desperate was the situation at the PHA? According to the PHA's most recent detailed pension filing with the state Public Employee Retirement Commission (PERC), in 2009, the plan held $183.5 million, and owed $272.8 million in future liabilities - a 33 percent shortfall.

By Pennsylvania standards, that's actually pretty good, PERC boss James McAneny told me. By comparison, the Philadelphia pension system was more than 50 percent underfunded. Pittsburgh was more than 70 percent in the red.

But the PHA is unusual in that its union workforce has been shrinking even faster than the city's as a whole, due to higher use of outside contractors, Eiding says.

The unions and acting PHA boss Michael P. Kelly cut their deal while the plan was still relatively solvent, instead of waiting until it gets severely underfunded - as the city has.

Crowding

GlaxoSmithKline is the latest big employer to pull out of Center City, following Arkema, Rohm & Haas, and Sunoco, among others, in leaving whole floors vacant.

Glaxo and its landlord, Liberty Property Trust, insist this isn't a cutback. They say they can fit the 1,300 workers currently spread among 800,000 square feet at Franklin Plaza into a new 200,000-square-foot building at the Navy Yard.

Whether or not it's possible to get all those people to pile up and be happy, Glaxo's departure leaves another hole in Center City, where office rents and office space haven't risen in 20 years.

Mayor Nutter did his best to call Glaxo's move a win. Then he ran uptown, to the old Wilkie Buick auto showroom in the 600 block of North Broad Street, to congratulate developer Eric Blumenfeld and partners on their new taxpayer-backed project.

Blumenfeld's EB Realty is partner with Ron Caplan's PMC Property Group in building 97 new apartments, adjoining hundreds Blumenfeld built at neighboring 600 and 640 North Broad, plus fancy new restaurants by Center City dining moguls Marc Vetri and Stephen Starr, and a catering hall by Joe Volpe, of Cescaphe Ballroom.

Cost: $43 million, of which $18 million is paid or lent by U.S. and Pennsylvania taxpayers. Value: 150 construction jobs through this fall, then dozens of food-service jobs, Nutter says. And profits for the investors down the road.

Can Center City keep attracting apartment dwellers and fancy eaters if companies such as Glaxo keep pulling out?

Sure, Caplan says. Besides North Broad, he's hoping to convert the vacant AAA insurance building into apartments, right in the heart of what used to be Philadelphia's modern Market Street West office district (now home also to the part-vacant Murano and Two Liberty condos.)

"People are still going to live in Center City," even if companies move out, Caplan told me.

Maybe Philadelphia will at least attract more high-end commuters to live here, if President Obama's $50 billion Amtrak speed-up program gets through Congress.