Finance Committee Approves Municipal Pension Relief Measure

Amended version of HB 1828 provides assistance to distressed communities

The Senate Finance Committee today amended and approved legislation designed to help Philadelphia address its fiscal crisis and provide relief from spiking public pension liabilities to communities across the Commonwealth, according to Committee Chairman Senator Pat Browne (R-16).

House Bill 1828 provides Philadelphia with a 30-year "fresh start" for amortizing its unfunded pension liability and allows the city to defer a portion of its minimum funding obligations in 2010 and 2011. The legislation also permits Philadelphia to temporarily increase its sales and use tax by 1 percentage point, from 7 percent to 8 percent. All revenue received from the sales and use tax increase must be applied toward its pension funding obligation. The temporary tax increase would expire on July 1, 2014.

An amendment offered by Senator Browne expanded the scope of the municipal pension relief under HB 1828 beyond Philadelphia to include all municipalities based on their level of funding for their individual programs. Senator Browne said two recent public hearings by the Finance Committee on municipal pension issues provided valuable information that assisted him in drafting the amendment.

"We got a better understanding during those hearings of the problems communities are facing," Senator Browne said. "It is appropriate for us to develop provisions that provide relief but ensure long-term solvency for those municipal plans."

Level I municipalities, those at funding levels ranging from 70 percent to 89 percent, would be considered to be in minimal distress. They would see a reduction in contribution limits for two years. Municipalities unable to make their minimal pension payments would be authorized to impose a special municipal tax.

Level II municipalities, those at funding levels from 50 percent to 69 percent, would be considered to be in moderate distress. They would see a reduction in contribution limits for four years and be required to submit an administrative improvement plan. They would also be restricted from increasing pension benefits until specified conditions are met.

Level III municipalities, those at funding levels below 50 percent, would be considered to be in severe distress. They would be required to enter a Municipal Pension Recovery Program and be administered by the Pennsylvania Municipal Retirement Board. They would have to revise their benefit plans for new hires to provide for a traditional defined benefit plan and/or a defined contribution plan (such as a 401k) that requires employee contributions of at least 6 percent of payroll and a matching employer contribution of 6 percent.

"Currently, state statutes provide a complex formula for determining the health of municipal plans. This formula is cumbersome and extremely difficult to apply. This bill simplifies the process by establishing clear definitions of three levels of distress and the relief available based on the severity of the municipality's unfunded liability," Senator Browne said. "The provisions of this bill are necessary to improve the conditions and accountability of pension plans across the Commonwealth."

HB 1828 grants special provisions for Philadelphia. It must freeze pension benefits for current employees and submit a revised plan for new hires by September 10, 2010. The new plan cannot cost more than 75 percent of Philadelphia’s current pension plan.

Philadelphia will be authorized to defer up to $155 million in pension funding in 2010 and $80 million in 2011. The deferred funding must be repaid, including 8.25 percent interest, by June 30, 2014.

The legislation also bars elected officials from participating in a deferred retirement option plan (DROP) addressing recent concerns in Philadelphia.

The Finance Committee also approved House Bill 1661, which establishes a moratorium on court-ordered countywide real property assessments while the General Assembly conducts a thorough and comprehensive study of the property tax reassessment system in the Commonwealth.

Contact:

Stacey Connors
(717) 787-1349