Problem Number One is that the pension fund could simply run dry by 2014.
Almost nothing can be found in terms of predicting the actual drop-dead date, except…
“Right now, there’s only enough money in the fund to pay our obligations for the next three or four years,” [Mayor Ravenstahl] said. (P-G, Smydo, Dec. 30 ’10)
At that rate we are now exactly 6 years from a zero fund balance in the fund. Hopefully the market does not sustain its downward trend and the city will certainly be forced to increase contributions (that is a story unto itself) so that 6 years may be overly pessimistic, but things will be quite insufferable years before the funding ratio reaches absolute 0%. (Null Space, Aug. 15 ’08)
Startling agreement, there.
Now, part of City Council’s pension plan of last winter was the shifting of $45 million from a fund formerly earmarked for other sorts of debt into the pensions. Another part of it was pledging to divert an extra $13 million each year from the parking tax — starting this year. Taken together, one might have expected those twin boosts to provide the fund with an extra year or two worth of breathing space.
However the market pointedly did not reverse its downward trend since fall of ’08, or the conclusion of ’10 for that matter. Besides which, the city’s fund hasn’t exactly always beaten or reached market performance — we found out this year that in the 4th quarter of 2010 (when the market was actually strong) the city fund performed in the 96th percentile of American pension funds. Next, there are actually literally three separate Pittsburgh pension funds — police, fire, and non-uniformed — all at different levels. It only takes the weakest of those three bottoming-out to trigger consequences. Finally, even before a fund literally equals “zero dollars”, it begins running into unavoidable problems with sustainability — like how to pay associated fees, make worthwhile investments, and keep a straight face.
So let’s go ahead and say those issues counterbalance last year’s funding initiatives by Council.
Today, a person can walk around town saying our pension fund is fixing to run out in 2014, with their heads held high.
Problem Number Two is that the pension fund might be “taken over”. We should learn that for a certainty by Halloween.
In September of 2009, Pennsylvania passed a stripped-down version of an Act requiring that city pension funds containing less than 50% of their total obligations would be dubbed “severely distressed”. Local management of such severely distressed funds would have to shift to the Pennsylvania Municipal Retirement System — a sort of co-op originally intended for much smaller townships, boroughs and counties. PMRS would then call the shots as far as how much cash Pittsburgh would be made to contribute to its pension fund, when it would be made to do so, and how those funds would be invested.
In terms of trivia, the initial version of the Act would also have frozen the benefits of employees in the distressed systems and allowed those local governments to switch to “defined contribution” or 401(k) style benefit plans, never mind collective bargaining agreements. These Walker-esque components — perhaps the actual original point of the Act — did not survive Labor’s lobbying and a narrowly Democratic state House.
But for our purposes, the fateful change to the final edition was carved out for Pittsburgh alone, whose pensions were funded at something like 35%. We were granted a special extension and a New Years 2011 deadline to reach 50% before being made to surrender control to PMRS.
Did it work? We don’t know yet. We were given a deadline of Sept. 1 to provide all the information necessary for state officials to make the calculation. Today is Aug. 20.
“Please give me this stuff in advance before we make ourselves nuts worrying about this,” he said. “If we wait until Sept. 1, there’s no way (the retirement system) can take over administration in two months.” (Trib, Bill Vidonic)
Could he have been giving us a hint? PMRS doesn’t really want to take over our pension fund management — we are regarded as a huge headache. This was all the Legislature’s idea, and a bastardized one at that. That’s probably why a City Council I.O.U. over 30 years is even being considered as a present-day fund asset capable of counting towards 50%.
“I don’t know why they did it without professional assistance, but apparently they did, and now I’m worried they didn’t do it right,” said James McAneny, head of the Public Employee Retirement Commission. “No one has bothered to notify us exactly what they did.” (ibid)
That especially didn’t comfort any of the players around here. In fact, it right shocked them, as McAneny’s “crackling voice” on speakerphone during a Council meeting on Wednesday, Dec. 29 sure seemed to indicate otherwise. Perhaps there was then some nuance overlooked.
And finally, even if the pledge / transfer were done acceptably, there is not any ironclad guarantee that it, plus our existent pension fund, will reach the 50% threshold. Not until they do the calculating next month.
Now, this is important. This may be the most important nuance to the blog post.
The relationship between Problem Number One (the Pension Problem) and Problem Number Two (the “State Takeover” Problem) is roughly the same as the relationship between the nation’s 9% unemployment and the nation’s $1.3 trillion deficit.
That is to say, people seem to think there is a relationship where none such exists.
If Pittsburgh manages to dodge the state takeover, we’re going to be facing the same day of reckoning in terms of no longer having cash on hand to meet our contract-laden financial obligations — and there is a word for that state of affairs. In fact, the state would be likely to stick in its beak via different means even as such a thing unfolds.
Whereas if we do indeed get taken over, we’ll be facing the exact same reckoning — we’ll just have a little less personal discretion as to how we twist in the wind, and for how many months we can resist voiding ourselves.
State Auditor General Jack Wagner hinted towards this non-relationship back in May with a football analogy. Yet confusing the two problems is still very easy and still has a certain political utility.
However and finally, the Pension Problem and the State Takeover Problem both impact Problem Number Three: the Budget Problem.
As we make these higher, more urgent pension payments and deal with several other challenges (bonded debt, the Lesser Depression, conservative ascendency), we progressively are and will be discovering new atmospheric layers of having no money left for running the city: for street paving, emergency equipment, civic
improvements maintenance and the like.
We can isolate glimpses of this when city officials argue about how much money remains in the annual capital budget, or when federal grant money gets rescinded, or when we argue (we do this a lot) over the impact of possibly rolling back parking rate increases and the implementation of the Council’s pensions strategy. It can also be sensed when you hit a pothole, dive into a public pool lacking any water, encounter a landslide or other emergency, get hit with a parking ticket, stare at the vacant crumbling rat-infested building / lot adjoining your own, or watch a moving truck pull up to your neighbor’s house. In the near-term future, the same may even be noticeable as your taxes go up.
To populists, skeptics and the politically indifferent, this could be the only problem that actually matters.
Strike that. Prepare for an era of wince-inducing postmodern politics. Facts regarding how our concrete pensions shortfall and our concrete responses to it are affecting our concrete city may not objectively exist.
We know there is a relationship, but — did this, that, or the other thing fail to materialize because of pension problems, or because somebody would rather it not? Was it because of something Council did, or because of something the Mayor didn’t do? Was it all really because of the mean old State and its stupid rules and gross Republicans? Or is it because of all that government waste? And what or whom is that waste?
Does the city Parking Authority’s decision not to fork over $8 million to the City — as is called for in the 2011 budget — blow an $8 million hole in that budget? Are you sure? Even if it does, would that mean there’s going to be $8 million less City surrounding us? How could you tell?
We have no advice yet for navigating this thicket.
Our instinct is to focus most of our attention on Problem Number One. Mathematics is the language of nature, and zero is an eigenvector of a Hamiltonian. You have to cling to something in this crazy workaday world.
Did you find this post valuable? If so, then please consider voting for the Pittsburgh Comet (again) today in the Most Valuable Blogger thing.