Pittsburgh Mayor Bill Peduto on Wednesday criticized Gov. Tom Wolf’s plan to borrow $3 billion to shore up the state pension systems that, collectively, need approximately $50 billion to meet retiree obligations.
In an interview with Tribune-Review editors and reporters, Peduto said pension bonds from the 1990s totaling nearly $300 million nearly led Pittsburgh into bankruptcy.
“Pittsburgh should be the litmus test showing that’s not the solution,” he said.
Peduto supports a Republican-backed state Senate budget proposal that would have switched new state employees, including legislators, from defined benefits to defined contribution plans similar to a 401(k), in which employees have the option to save and invest some of their paychecks, a portion of which the employer matches.
Wolf vetoed the proposal.
“The bill the Republicans put forth was one that we could support,” said Peduto, a Democrat.
It contained concepts that could translate to municipal systems, many of which are having problems.
Pittsburgh’s biggest financial challenges are covering pension obligations of about $1.2 billion and paying off debt.
More than 30 percent of Pittsburgh’s $508 million spending plan goes to retirement checks for about 5,000 retirees and annual debt payments. Pittsburgh’s pension funds have $673 million, enough to cover 58 percent of their obligation to current and future retirees.
In 2010, the city averted state takeover of its pension plans by promising to dedicate $736 million in future parking tax money to them by 2041.
“It’s mathematically impossible to finance our pensions based on the rules of the state right now,” Peduto said. “One out of every $5 we spend every year just goes back to paying those old bonds. Not only that, but our debt ratio is higher than New York City’s when they went bankrupt.”
Peduto has joined other Pennsylvania mayors in calling for changes in municipal pension law.
In addition to changing pension plans, they support legislation that includes limiting the impact of late-career overtime pay on pension payments, removing pension benefits from the collective bargaining process for police and firefighters and providing cities with a larger chunk of state pension funding.
Ralph Sicuro, president of International Association of Firefighters Local 1, said city firefighters haven’t asked for a pension benefit increase in decades, but they want the right to negotiate an increase should funding levels improve significantly. He said overtime should be included in pension calculations.
“If your pension becomes healthy and you can do a benefit enhancement, you should be able to bargain that,” Sicuro said.
Peduto said he’s hoping to reach a compromise with Wolf and other Democratic legislators, adding that the political environment is fertile for pension law changes this year because all state representatives and half of the senators are up for re-election in 2016.
Rep. Dan Frankel, D-Squirrel Hill, said there are areas in which state and local lawmakers can find agreement, including limiting employees’ ability to “spike” their pensions by accruing extra overtime late in their careers.
“I know it’s a serious issue facing Pittsburgh and many other municipalities, and I think there can be some common ground to fix it at the end of the day,” Frankel said.
But he disagrees with the concept of a defined-contribution plan, saying it would limit the amount of money coming in that is used to invest in the system. Frankel said he thinks the idea of consolidating plans under the Pennsylvania Municipal Retirement System could be a way to help cities and townships reduce costs.
He pointed to a recent municipal pension task force report from Auditor General Eugene DePasquale as a starting point for negotiations. It includes policy changes related to the calculating and funding of pensions, including one Peduto supports: excluding municipal pensions from collective bargaining.
Wolf spokesman Jeff Sheridan said the governor is reviewing DePasquale’s report.
State Sen. Minority Leader Jay Costa, D-Forest Hills, said he thinks a municipal pension deal is possible this year, but not before the Legislature passes a budget.
“Municipal pension reform is not on the list of top 10 things right now to get done, but it will be on the list of things we do in the fall,” he said. “My hope is we have it concluded by the end of the year.”
Bob Bauder is a staff writer for Trib Total Media. He can be reached at 412-765-2312 or [email protected].