Even as it careened toward bankruptcy, the city of Scranton, Pennsylvania, approved $3 million in bonus pension payments for a handful of city employees.
Those extra payments effectively doubled the retirement pay of 35 city workers and were given without a proper analysis of the cost to the city’s taxpayers, according to a state audit released this week.
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SCRANTON: The northeastern Pennsylvania city is buried under $150 million in unfunded pension liabilities and only made things worse for itself when city officials okayed “double pensions” for some workers without giving consideration to long-term costs, according to a state audit.
“City council and the pension board again failed to understand the short- and long-term impact before extending the retirement offer and now taxpayers are left holding the bag,” Eugene DePasquale, Pennsylvania’s auditor general, said in a statement.
Scranton officials offered an early retirement incentive to 25 employees in 2002 and, after a lawsuit, had to make a similar offer to 10 more employees in 2007. The special “double pensions” have already cost the city $3 million and will make it harder for Scranton to dig out from under an estimated $150 million unfunded pension liability.
After the audit, Mayor William Courtright called for Scranton’s pension plans to be taken from the city and given to a statewide pension management commission.
According to the auditor general, not all the employees may have qualified for the higher pension payments. Even if they did, the city did a poor job of determining the long-term cost of the early retirement incentives, he said.
Scranton’s financial woes of the past decade can hardly be pinned on three dozen employees who received overly generous retirement pay, but it’s another example of poor decision-making that has led the northeastern Pennsylvania city into steep decline.
Scranton’s pension funds were 78 percent funded in 2002 – meaning the funds had enough assets to cover 78 cents of every dollar in long-term liabilities. As of last year they had dropped to a level of 23 percent, giving Scranton the inglorious honor of having the worst-funded pension system among Pennsylvania’s major cities — by a comfortable margin.
WORST OF THE WORST: Scranton has the least-funded pension plans among Pennsylvania’s largest cities. On a per capita basis, only Philadelphia owes more.
Individually, the non-uniformed pension plan is funded at 22 percent; the police pension plan is funded at 29 percent and the firefighters’ plan is funded at 17 percent.
Currently, 121 people get pension benefits from the city of Scranton, but the 35 who received the so-called “double pensions” are collecting more than half of the city’s annual payments to non-uniformed retirees, DePasquale said.
The total in annual payments for these 35 retirees is $533,760 and represents 53 percent of the $1,076,140 total annual benefits paid to all beneficiaries of the plan.
In an effort to avoid bankruptcy, the city raised property taxes by more than 50 percent in 2014 and by 19 percent in the current budget. Even so, the plans are expected to run out of money within five years, actuary Randee Sekol told the Scranton Times-Tribune in December.
Cartwright wants the Pennsylvania Municipal Retirement System, which manages some pension plans on behalf of municipalities, to manage Scranton’s plans.
“We must do everything we can to fix this and we can never let this happen again,” Courtright told Newsworks on Thursday. “We must take all necessary measures to secure this City’s financial future and put this squarely behind us.”
But Courtright is not part of a coalition of his fellow Democratic mayors who have been pushing for municipal pension reforms in Harrisburg. Officials from Pittsburgh, Erie, Allentown, York, Lancaster and a host of smaller Pennsylvania cities — all of which are facing pension problem, though none as severely as Scranton — have been pressuring Democratic state lawmakers to get on board with a mostly-Republican led effort to allow more flexibility in how municipal pension benefits are handled.
As PA Independent reported, the mayors support a bill that would put newly hired municipal police officers and firefighters into a cash-balance plan, instead of the traditional pension system.
The pleas have only grown after DePasquale released a report earlier this year that found municipalities across the state have nearly $8 billion in unfunded pension liabilities.
Pennsylvania has more than 2,500 separate municipal pension systems, about a quarter of all such plans in the nation.
Even though PRMS manages many of the smaller pension plans on behalf of townships and boroughs, each plan is technically separate. DePasquale and others have called for a more robust unification of municipal pension plans to eliminate redundancies and save money on management costs, but lawmakers don’t seem likely to address the municipal pension issue in this year’s budget session.
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