HARRISBURG —They may not yet be at the forefront of policy debates at the Capitol, but Pennsylvania’s municipal pension troubles are stirring more discussion than usual.
State Auditor General Eugene DePasquale drew attention to the issue in January by releasing a report that showed the unfunded liability of cities and other municipalities that sponsor pension plans increased by about $1 billion over two years to $7.7 billion by the end of 2012.
The widening pension debt is driven largely by the cost of police and fire protection and exacerbated by a sluggish economy, demographic shifts, a volatile stock market and retirees’ increasing life expectancy.
DePasquale, a Democrat who is the state’s elected fiscal watchdog, warned that it could force some municipalities into bankruptcy and jeopardize benefits being paid to people who already have retired.
Local government advocates, including 10 Democratic mayors, are pressing lawmakers to approve Republican bills to change the rules for new municipal hires by replacing traditional pensions with less expensive alternatives. They also want to bar the negotiation of pension benefits.
“Where are the Democrats?” asked the statement issued earlier this month and signed by the mayors of Pittsburgh, Allentown, Harrisburg, York, Erie, Lancaster, Easton, Bethlehem, West Chester and Kutztown.
The prospect of achieving long-term savings by reducing benefits for future employees has been a perennial theme in the larger legislative debate over how to rein in the costs of the two statewide retirement systems that serve hundreds of thousands of government and school employees.
Former GOP Gov. Tom Corbett led the fight for a pension overhaul during his one-term tenure but failed to win majority support in the Republican-controlled Legislature.
His Democratic successor, Gov. Tom Wolf, is not advocating changes to state pension laws, but rather proposing a $3 billion bond issue as the centerpiece of a plan to refinance the Public School Employees’ Retirement System’s debt.
Senate Republican leaders are crafting a pension reform plan that they have said may call for reducing future benefits of current employees to provide short-term savings in addition to reining in an unfunded liability that now exceeds $53 billion.
It does not include any changes for municipal pensions, at least not so far, a spokeswoman said.
“We haven’t had the door closed on us” yet, said Sen. John Eichelberger, R-Blair, who plans to introduce a bill to make 401(k)-style defined-contribution plans optional for municipalities and make pensions off-limits in arbitration cases.
Yet big-picture solutions are challenging to design for municipalities that range from some of the nation’s smallest villages to its fifth most populous city.
Those municipalities administer more than 3,200 local pension plans – four times as many as any other state, according to The Center for Rural Pennsylvania, a legislative agency. Two-thirds of them have fewer than 10 members, said Jim McAneny, director of the Public Employee Retirement Commission.
Also, unlike the two statewide pension systems for government and school employees, in which the Legislature sets benefits and contract negotiations focus on pay and health care, the municipalities independently negotiate over their pension benefits.
“Almost every policeman and firefighter has some different plan,” said DePasquale, a former legislator from York County.
Municipalities share a portion of revenue from the state tax on insurance premiums to help pay for their pensions. The payment currently totals about $250 million a year, said McAneny, whose agency monitors Pennsylvania’s public pension plans and assesses the impact of legislation that affects them.
In his report, DePasquale proposes several changes to ease the local pension crunch, including a consolidation of local pension plans into a single statewide system. He acknowledged this week that the situation has not yet reached crisis proportions but said action is needed.
“It’s not a meteorite hitting the Earth. This is an iceberg slowly knocking down trees in its path,” he said.
The governor called the municipal pension issue “huge.” Wolf said his staff is exploring ways to deal with it but that he has no timetable for making recommendations.
Sen. Jay Costa, D-Allegheny, the Senate minority leader, responded to the Democratic mayors by citing several laws passed in recent years that tightened municipal pension laws. He said any discussion about municipal pensions should be put off until fall.
“We have a plateful of (other) items that need to be addressed and I don’t know whether or not we’ll be able to get through all those,” Costa said.
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