DN Editorial: In a pinch over pensions

THE TIME HAS come to take steps to fix Philadelphia's pension mess.

No one disagrees the fund is in trouble. Despite infusions of billions in additional payments from the city over the last 15 years, the pension fund has long-term liabilities in excess of $5 billion. As of now, the fund has only 46 cents on hand for every dollar it will have to pay to current and future retirees.

Mayor Nutter's own budget plan calls pensions "the most significant financial challenge facing the city."

In a recent report, the state board that oversees the city's finances said the pension system "presents a significant risk to the city's long-term financial stability..."

Why this alarmist language?

Because under the current system every dollar the fund falls short on is a dollar that taxpayers must pay to make up the difference. And every taxpayer dollar that goes to support the fund is a dollar taken from city services — everything from policing to picking up the trash.

Today, nearly 16 cents of every dollar spent by the city goes to the pension fund. This year it will total $719 million. And that payment — mandated by state law — is likely to rise every year until 2020.

Odds are the situation will get worse before it gets better. A downturn in the stock market would wreak havoc on the fund's investments. The retirement of the Baby Boomer generation will put additional strain on the fund. The number of retirees currently exceeds the number of active employees by 3,500, a split that is expected to rise.

The Nutter administration hasn't ignored the problems of the fund. It recently negotiated small increases in the amount of money employees contribute from their salaries into the fund. (Though Philadelphia is next to the lowest in that category among major cities.)

Nutter also proposed using at least $500 million of the profits from the sale of PGW to feed the fund. It would have been provided a major financial boost, but it never happened. Council refused even to debate the PGW sale.

There is hope that under Gov. Wolfe's proposed budget, some tax proceeds will go to help the pension fund. But that proposal — which increases the state sales tax — has to make it through the Legislature. It is no sure thing.

In its staff report, the Pennsylvania Intergovernmental Cooperation Authority, the state oversight agency, recommended a number of ways to help the fund. Ending the Deferred Retirement Option Plan program was just one of them.

But, a key recommendation hasn't gotten much attention. PICA said an independent commission should be created to review the pension system and recommend reforms.

The commission, it said, should not include just city officials and politicians, but also business people, taxpayers and experts in pensions.

Normally, we don't favor such commissions, but this is an exception to that rule.

The commission's recommendations will probably be controversial, but the next mayor will ignore it only at his or her own peril. Because this is a problem that is not going to go away without action.