Crushing pension obligations are pushing stressed governments
The cost of paying public-worker pensions is soaring even for some well-off suburban towns. Consider Radnor Township. This leafy cluster of Main Line villages paid $3.3 million in 2014 to stabilize its police and civilian pension plans, tripling what it paid in 2006.
The cost of paying public-worker pensions is soaring even for some well-off suburban towns.
Consider Radnor Township. This leafy cluster of Main Line villages paid $3.3 million in 2014 to stabilize its police and civilian pension plans, tripling what it paid in 2006.
Police have agreed to contribute more, and the township has stopped offering traditional, guaranteed pensions to new civilian hires. Still, the plans remain "moderately distressed," with just 60 cents set aside for every $1 in future pensions, a ratio similar to that in poorer towns such as Chester City or Darby, a report by state Auditor General Eugene DePasquale concludes.
Neighboring Haverford, which made changes similar to Radnor's, has just 71 cents in assets to cover each future pension dollar.
And the Quakertown Community School District said in June that it would go on a payment strike, of sorts, delaying its next $1.25 million quarterly contribution to the state school retirement system. The goal is to force the state to stop what the board president called an "unjust" rise in districts' pension payments. Pennsylvania school pension payments quadrupled from 2010 to 2014, and are scheduled to double again by 2019, under a law designed to make up for years of underpayment.
In Quakertown, recent school property-tax increases have gone to finance "nothing but the pension, every penny, for the last five years," says school board president Paul Stepanoff, who is inviting other districts to delay payments and increase pressure for changes in the system.
In some ways, Quakertown is following the lead of Gov. Christie in New Jersey, which combines state and local government and school pensions in one big system.
Christie this year refused to make more than a fraction of the state's recommended contributions, while pressing the Democratic-run Legislature for pension cuts.
The result, so far, is stalemate: The New Jersey Supreme Court ruled in June that state law doesn't require Christie to fully fund pensions. So its $80 billion-plus pension deficit keeps mounting, helping to give New Jersey the nation's worst credit rating of any state, and forcing it to pay far more to borrow money. (Pennsylvania is third-worst in part for its unmet pension needs.)
Past underfunding has also pushed taxpayers' payments to Pennsylvania's myriad local government pensions higher. The state has more than 3,000 municipal and police pension plans, more than any other state.
State law makes it hard for government to simply cut pensions that workers have already qualified for. So various fixes tend to focus on reducing benefits for future employees. And even if Pennsylvania passes such bills this year, "we are probably going to have years of higher pension contributions required," says Robert C. Jazwinski, an estate planner at JFS Wealth Advisers near Pittsburgh,
Local officials say a larger reckoning is coming. While hundreds of suburban and upstate plans remain solvent, pension payments "are driving a growing number of municipalities into financial distress and even bankruptcy," wrote 10 Democratic Pennsylvania mayors, including Carolyn Comitta of West Chester, in an April open letter endorsing a Republican-led pension-reform plan.
The payouts are creating "an economic dead end" for older cities, which can't afford to attract new employers because of the pension "crisis," says Christian Muniz, a former Rendell administration official-turned-lobbyist for the Coalition for Sustainable Communities, which backs pension limits.
Few places feel more funding pressure than Philadelphia, where the city pension plan has consumed more than $600 million in each of the last two years, one-sixth of its budget.
The city has just 47 cents set aside for every pension dollar it expects to need. City Council and the unions have resisted Mayor Nutter's proposals to make up for decades of pension underfunding by selling the gas works and shifting hires from guaranteed pensions to private-sector-style savings plans.
With no changes, the pension predicament keeps growing. Not counting Philadelphia, the state's cities and towns paid $867 million to keep their pension funds solvent last year. That's an average of 24 cents for every dollar paid to active local-government workers' salaries and benefits, up from 9 cents on the dollar 10 years earlier, according to the Public Employee Retirement Commission.
Local taxpayer contributions to the state's unified school pension system have risen even faster, from 4 cents per dollar of payroll in 2010, to 16 cents in 2013-14, and are headed to more than 30 cents in 2019.
The state contributes half the yearly cost for affluent districts such as Lower Merion or Great Valley, and two-thirds for poor cities such as Philadelphia, Lancaster, and Scranton.
Towns that don't get pension costs in line with spending could end up filing for bankruptcy, like Detroit. But Pennsylvania officials of both parties have long resisted that, preferring to put troubled cities such as Philadelphia, and smaller towns such as Colwyn, under state fiscal supervision.
Quakertown's school pension protest has a clear political goal:
"We are hoping to build up enough public awareness that the state legislators and the governor are forced to do something," said board chairman Stepanoff, an engineer who runs a wind, solar and geothermal energy business in Haycock Township.
"They are far too comfortable with the status quo. They made the pension system unsustainable. They [force] school districts to raise taxes locally. We get the blame. And they think they will live happily ever after."
Upper Makefield township supervisors voted, 3-2, on June 16 to "escrow" their school pension payments, too. It's part of Council Rock School District, whose pension contribution rose to $9 million last year.
Stepanoff knows that keeping employees out of the old pension plan won't eliminate the built-up deficit. But as pensioned teachers age, at least the obligations and the deficit won't keep mounting.
"I don't mind if we have to pay a little more taxes, now and then," he said. "I mind paying increasing and increasing amounts, and not knowing there is a solution."
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