Pittsburgh’s City Council directed $736 million in parking-tax revenue to its underfunded pension system, eight hours before the deadline to avoid a state takeover and higher pension payments.
Council members voted 9-0 to override Mayor Luke Ravenstahl’s veto of the plan to dedicate as much as $27 million a year of its 37.5 percent parking-lot tax through 2041 to the retirement funds. The pensions had about $325 million in assets to cover $1 billion in promised benefits before the council action, according to a consultant’s report.
It was Ravenstahl’s second veto in as many days of a plan he says will undermine budgets and likely fail to prevent a takeover. Under Pennsylvania’s control, the city’s annual pension payments would rise from $46 million now to $127 million in 2017, a state analysis shows.
“A state takeover would take us into raising taxes and really devastating this city,” Council President Darlene Harris said when she introduced the bill yesterday. “I believe in my heart I am doing what is right for this city to move forward.”
The state requires the plan to have assets to cover at least half its obligations before Jan. 1, or the Pennsylvania Municipal Retirement System will take control.
With the prospect that pension costs may exceed 25 percent of the city’s $450 million annual budget by 2017, Pittsburgh joins cities such as Chicago and states such as Illinois and New Jersey that have considered cutting services or raising taxes to meet the ballooning retirement bill. Those states and 18 others skipped payments or underfunded pensions from 2007 to 2009, according to an October report from Loop Capital Markets.
Was it Enough?
Whether Pittsburgh’s strategy is enough to avoid a takeover won’t be known until the second half of 2011, after actuaries have determined the fund’s asset level as of today, said James McAneny, executive director of the state Public Employee Retirement Commission.
The city today received approval for the budget changes from Pittsburgh’s Intergovernmental Cooperation Authority, a state agency set up to monitor the city’s finances in 2004.
Officials in Pennsylvania’s second-largest city have been trying to devise a plan to shore up its pension for two years.
The parking tax is projected to raise $47 million in next year, according to Ravenstahl’s budget.
Pittsburgh’s pension system includes three retirement plans for about 7,000 active and retired firefighters and government workers. The accounts have only enough funds to pay benefits for three to four years, Ravenstahl said.
Moody’s Investors Service changed its outlook for the city’s A1 rated general-obligation bonds to negative on Nov. 23, citing a potential rise in pension costs under state control.
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