Pension "Armageddon" in Pittsburgh; State Threatens Takeover of City Pension Plan

Pension stories seem to be going viral lately, not any story in particular, just the sheer number of them. Please consider Pittsburgh City Council, Mayor Clash on Pension ‘Armageddon’

Pittsburgh’s City Council ordered Mayor Luke Ravenstahl to attend a meeting today to hash out a plan to avoid a state takeover of the underfunded municipal pension, which may more than double its cost to taxpayers.

A vote to compel Ravenstahl to come before the council’s finance committee followed about six hours of debate on shoring up the pension system using parking fees. The retirement plan has about $325 million in assets to cover $1 billion in promised benefits, according to a consultant’s report. The city has until Dec. 31 to show the state how it will bolster the plan.

“It’s merely an accounting gimmick to get past Dec. 31,” said Scott Kunka, Ravenstahl’s finance director, on the proposal to use parking fees over the next 30 years to support the pension system. “It’s just a bad concept,” he said.

Pittsburgh, whose pension problem was called a “financial Armageddon” by two city councilors yesterday, joins cities such as San Diego and states such as Illinois and New Jersey that may cut services or raise taxes to meet ballooning retirement costs. Those states and 18 others skipped payments or underfunded their retirement systems from 2007 to 2009, according to an October report from Loop Capital Markets in Chicago.

Pittsburgh’s pension system includes three retirement plans for about 7,000 active and retired firefighters and government workers. Under Pennsylvania law, the state must begin taking control if the city’s obligations are less than 50 percent funded as of Dec. 31.

Raising taxes is not the answer. It would encourage both white flight and business flight. Higher property taxes would cause more bankruptcies from people already on the edge, barely able to get by right now. Higher taxes certainly would do nothing to attract business.

Gary, Indiana twice received special permission from the state to raise taxes to meet funding requirement. The result is taxes are higher and Gary is still broke. Instead, Indiana, one of 26 states that do not allow municipal bankruptcies, is about to. For details please see Indiana Bill Would Allow Cities to Declare Bankruptcy; Gary, Lake Station, Georgetown Likely Candidates; Hands Tied in Rhode Island

Interestingly, Pennsylvania is one of the states that do allow bankruptcy. I urge the Pittsburgh city council to take just that option.

Five Step Plan For Pittsburgh

• File Bankruptcy
• Outsource its entire police department to the local sheriff's association
• Outsource it fire department to the lowest qualified bidder
• Outsource garbage collection and any other services to the lowest qualified bidder
• Seek to reduce pension obligations in bankruptcy court

Pennsylvania Governor-elect Tom Corbett is a Republican. He takes office on January 18, 2011. Please consider Pennsylvania Gov.-elect Tom Corbett says transition team provides 'fresh set of eyes' on state government

Gov.-elect Tom Corbett met today for the first time with the small army of volunteer advisers who form his extended transition team, but he remained tight-lipped about prospective Cabinet appointments or his promised government belt-tightening.

Corbett characterized the collection of more than 400 business leaders, veterans of past Republican administrations, conservative activists, legislators and even a few Democrats as "a fresh set of eyes" with which the architects of his administration can size up state government and recommend new ways of doing things.

He is scheduled to be sworn in Jan. 18 as the successor to Democratic Gov. Ed Rendell, who is stepping down after serving the maximum two consecutive terms.

The transition team is divided by subject into 17 committees. One panel is assigned to the budget, pensions and revenue, for example, while others focus on topics that include health and aging, education, criminal justice and economic development. The committees will scrutinize 25 state departments and agencies, transition officials said.

The committees' final reports are due by the second week of January, Corbett said.

One Democratic transition team member at Tuesday's meeting was state Sen. Anthony Hardy Williams of Philadelphia, who finished third in a four-way Democratic gubernatorial primary in May. Corbett has praised Williams' advocacy of expanding "school choice" — an umbrella term for vouchers, charter schools and other taxpayer-financed alternatives to public schools.

The city should be talking with Tom Corbett's transition team regarding bankruptcy right now. I bet the governor would consider it. Bankruptcy and killing untenable public union contracts, not higher taxes is all that can save Pittsburgh.

The mayor and the city council should have one master, the people of Pittsburgh, not the police and fire unions.

Pittsburgh's city council's obligations to the city are to produce the most services for city residents at the least cost. Public unions provide the fewest services at the most cost. It is time to put an end to this widespread practice that threatens to bankrupt numerous cities in the country this year.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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