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March 22, 2007
TO THE PRESIDENT AND MEMBERS OF THE COUNCIL OF THE CITY OF PHILADELPHIA
I am returning herewith as disapproved Bill No. 060828, passed by the Council on March 1st 2007. This Bill would remove a requirement from the Public Employees Retirement
Code that the Pension Fund achieve the actuarial ftrnding level of 76.7%t before any payments to the Pension Adjustment Fund (PAF) can be made. Instead, positive returns on pension assets of more than 9.75 percent (based on the current earnings assumption) would have to be shared with the PAF immediately, regardless of how poor the condition of the pension plan. All gains between 1 percent and 6 percent would have to be split with the PAF — enriching the benefits of vested and already-retired employees. The City's actuary has estimated Bill No. 060828 could increase the required General Fund contribution by $300 to $600 million, over the next 15 to 17 years when it is projected the Pension Fund will be funded at 76.7%.
Over the last fifteen years, we have restored the fiscal stability of our City, created one of the most vibrant center cities in the nation, created a renaissance in our neighborhoods, reduced taxes by more than $1.8 billion dollars creating a healthier business environment, a robust hospitality industry, and stabilized City finances. Six years of fiscal stability and academic progress in the public schools, enhanced programs for our children, and decreased serious violent crimes has been achieved. Many thought this would be impossible. We have not been timid when confronted with tough decisions or opportunity. Philadelphia has as bright future, however, the job is never done. In the coming years, this City like many others across the country must address more job creation, the need for additional social supports for our families and children, school funding inadequacy, inequity in our property tax system, soaring healthcare costs, gun violence and prison overcrowding that can compromise our future. This Bill, while charitably motivated takes us in the wrong direction.
Due to the market downturn and severe losses early this decade, the last time that the
Pension Fund achieved the fund basis of a 76.7 percent actuarial funding level was in
FY01, when the City's General Fund contribution to the Pension Fund was $194 million.
The Pension Fund is currently funded at only 53 percent, one of the worst funding ratios among the 50 largest cities in the country according to a recent report by Moody's Investors Service and the General Fund pension payment is budgeted at $419 million for FY07. The City and its taxpayers are paying more than twice as much, with further increases scheduled in the next several years and barely affordable in the current Five-Year Plan, yet we have gotten further behind on the amortization schedule necessary to be sure that the Pension Fund can meet its legal obligations.
The Pennsylvania Intergovernmental Cooperation Authority (PICA) raised many of these issues in its report on the City's Pension Fund issued in December 2005, and repeated the warning in its testimony before Council in connection with Council's consideration of Bill #060828. In response, the Administration proposed lowering the assumed earnings on the fund from 9% to 8.75%. We would do well to heed PICA's warning and focus our efforts on shrinking the unfunded liability rather than authorizing largely unrestricted COLA payments as permitted in this legislation.
The Council has clearly expressed an interest in providing assistance to our current, long-standing retirees, and I share that interest. I will work with Council to provide a bonus payment for all retirees (or their survivors) aged 60 and over, who were retired at least 15 years as of January 1, 2007. This would allow us to do something now for those retirees that have not received an adjustment or bonus in five years, and who may be most in need since their pension base pay was determined at a time of lower salaries, rather than make a systemic change with significant and long-lasting impacts shortly before the next Mayor and Council must grapple with many challenges, including pensions.
Respectfully submitted,
John F. Street
Mayor
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