After years of attempting to make sense of the city’s financial predicament with its employees’ massively unfunded pension plan, the city council passed a 37.5 percent parking tax ordinance, and passed on its proceeds to the plan for the next 31 years. The city council’s action beat a state-imposed deadline by only 8 hours.
The city council and Mayor Luke Ravenstahl had been battling for months over the best way to avert the state’s takeover of the pension plan, which could have occurred as early as Jan 1. The state of Pennsylvania requires that retirement plans be at least 50 percent funded; Pittsburgh’s was only 29.3 percent funded at the end of the third quarter. A consultant’s report said the plan has about $325 million in assets to cover about $1 billion in benefits that the city promised its workers.
If the state were to take over the plan, it would require an onerous payment plan to bring plan balances to a fully-funded level. The city feared that the state would immediately order it to double its $46 million contribution to the plan by 2015, and raise it to $160 million by 2030. Under the state’s supervision and funding requirements, the city would be severely constrained in its ability to provide even the most basic city services.
Two months ago, Ravenstahl floated a plan that would lease the city’s parking facilities for 50 years to a private operator, raising $452 million. The city council rejected that proposal.
Normally, the only method to increase the balance in a pension fund is by the deposit of monies. The executive director of Public Employees Retirement Commission, James McAney, has said that he would approve the deposit of another form of “value”, in this case, a dedicated income stream from the parking tax imposed on residents.
Even after the vote, officials won’t know if the plan will be enough to keep the state from taking over the plan. Actuaries will need several months to calculate if the fund balances will rise to 50 percent, after the infusion of the parking tax.
Even after imposing the outsized tax, bringing the fund’s balance to the required 50 percent level means that the city will only have reserved one-half the monies it promised its police, firefighters and city workers, and that more tax hikes and service reductions will be needed in the future.