Potential Pittsburgh pension costs told
A state pension official reaffirmed Tuesday that without a fast cash payment, Pittsburgh faces large increases in its annual contributions to municipal retirement accounts under state management.
“You can’t wish away an obligation,” James Allen, secretary of the Pennsylvania Municipal Retirement System, told City Council. “You created an obligation, and you have to pay for it.”
The underfunded pensions could affect the city’s bond rating. Moody’s Investor Services yesterday said it will keep the city’s rating at A1 but gave the city a “negative outlook” because of the prospect of higher pension payments. The lower a city’s bond rating, the more expensive it is to borrow money.
“The city’s inability to develop and implement a realistic plan to address this growing liability will impact its overall financial position and may place significant pressure on its relative creditworthiness,” Moody’s said.
City officials have until Dec. 31 to get pensions funded to 50 percent of $1 billion in obligations, or face a state takeover of the retirement system for 8,000 employees. Council rejected Mayor Luke Ravenstahl’s idea to lease parking facilities to a private operator for 50 years for $451.7 million, and put at least $220 million into the pensions.
Council cannot agree on a plan to raise the money. The Parking Authority refused an idea put forth by council and Controller Michael Lamb to sell some facilities to the authority, which would borrow the $220 million needed.
Under that scenario, said Councilman Bill Peduto, council’s finance chairman, “We would be able to afford (pension payments) until our debt service is reduced in 2018. Minus that, if we end up at a stalemate, we will have a few difficult years to be able to afford (the payments).”
The state retirement system last month said if it oversees Pittsburgh’s municipal pensions the city would pay at least $100 million annually into the plans. The city paid $60 million in 2010, when the city budget totaled $456 million.
Council members asked the agency to put forth other numbers, varying the upfront payments and the pension valuation. With a large upfront payment, the city could afford higher pension payments until its debt service drops drastically in 2019, from nearly $90 million to $30 million.
In nearly all the scenarios, state officials predicted the city will continue to spend more on pensions than it takes in over many of the next 15 years.
In a letter to council, Allen warned that the revised numbers are simply assumptions, and there is no guarantee the financial projections would hold up.