This year, Philadelphia taxpayers will be on the hook to pay $600 million or more a year for Philadelphia city worker pensions. That staggering number is partly based on calculations the city makes about the return its pension fund will get on its investments. But the city cannot prove its rosy prediction will come true and many think the projection is way too optimistic.That’s not fair to residents, workers, and retirees, who want to evaluate deals affecting the fund’s health.
That’s a big problem for a fund that is woefully inadequate. It has less than half of the $11 billion it has promised retirees.
Yet the city seems to be continuing the dubious policy of overestimating investment income with this year’s projection of a 7.7 percent return on investments, which the experts aren’t buying.
“The consensus estimate is that stock and bond markets are unlikely to earn the assumed 7.7 percent return, so the funding will be much below what is projected,” said the Pension Resource Council’s executive director, Olivia S. Mitchell.
For years, mayors, including Jim Kenney, have been trying to reduce pension costs because the bigger they get, the less the city can offer to residents in services like keeping police on the beat or the lights glowing in recreation centers. To grasp the enormity of the taxpayer contribution to pensions, consider that according to the city budget, for every tax dollar the city collects, more than 15 cents goes to the pension fund.
With that kind of taxpayer investment, it is outrageous the city won’t give staff writer Claudia Vargas even the most fundamental facts about its pension deals with workers.
The city won’t say how many more dollars recently resolved contracts for blue-collar workers will add to the fund. And while it has heralded recent deals with blue-collar workers and the Fraternal Order of Police as “pension reform,” it won’t offer details on how these changes will reduce fund liabilities.
That’s especially important, since police stopped the city from putting new officers into a hybrid plan that would cost less in the future.
The city says it won’t give up many details about its pension agreements because it is still negotiating with firefighters and white-collar workers. But those unions already know a very important fact: Arbitrators ruled against the city’s plan to have new police join a less expensive pension plan.
When the city ultimately completes bargaining with firefighters and white-collar workers, it probably will have to dip into its operating budget to cover expenses. If revenue doesn’t grow enough to cover the costs, services will be hit. Certainly, all those affected should have something to say about it, including residents.
The city has put forth an effort to fix the fund, and to be fair, the pension problem goes back decades. Since the Pennsylvania Intergovernmental Cooperation Authority oversees city finances, and has frequently raised concerns about escalating pension costs, it should use its approval powers to insist on real reform.
If PICA doesn’t act, taxpayers could be stuck with the worst option of all, paying more money for fewer services.