Pennsylvania Municipal Pension Reform in a Nutshell

Yesterday the Senate approved HB 1828, a long and complicated bill full of so-called pension reforms and potential local tax increases. Here’s a basic summary of the provisions following Senate amendments:

  • Permits Philly to amortize its unfunded pension liabilities over 30 years instead of 20 (the private sector maximum is 7 years). Future taxpayers will get stuck with larger pension payments.
  • Allows Philadelphia to defer a portion of their pension fund payments for 2 years at an interest rate of 8.25%, again passing debt on to the next generation.
  • Permits an increase in Philadelphia’s sales tax from 7% to 8%; the increase must be used to fund municipal pensions. Raising the sales tax will further decrease the city’s economic competitiveness and push shoppers to suburbs and Delaware, which has no sales tax.
  • Requires a freeze in pension benefits for current employees and negotiating a new benefit plan for newly hired employees for Philadelphia and other “distressed” pension plans.
  • Freezing Pittsburgh parking tax at 37.5%, with 6.75% dedicated to the city’s pension fund and allowing an additional 2.5% parking tax if the city leases or sells its parking garages.
  • Establishes a pension rating system with accompanying procedures for underfunded pension systems (Level III would apply to Pittsburgh):
  1. Level I (70-80% funded ratio): Reduced contributions for 2 years and authorization to impose a new municipal tax if unable to make minimum pension payments.
  2. Level II (50-69%): Reduced contributions for 4 years, aggregation of trust funds, submission of a improvement plan, and prohibition on increasing benefits in most cases.
  3. Level III ( less than 50%): Takeover by Pennsylvania Municipal Retirement Board, make reduced pension payments, revised benefit plan for new employees, another tax to defray pension costs, transfers assets to PA Municipal Retirement System, and establishes a statewide Cooperative Municipal Pension Program for new hires in an effort to decrease administrative costs.

Unfortunately, HB 1828 is a huge missed opportunity for true pension reform.

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