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Pittsburgh City Pension is Dead

August 30, 2009

The numbers from the Pittsburgh city pension are startling.

Finance director: Pittsburgh’s pension liabilities could top $1 billion

The magnitude of the difference between benefits offered and funding of the pension is simply mind boggling. It looks, at best, something like this:

This is based on 2007 data.  Current picture is worse.

This is based on 2007 data. Current picture is worse.

The Pittsburgh city pension has been historically underfunded – this is not caused by the current stock market decline.

From this article: Pittsburgh’s Fiscal Crisis (2004)

Years of operating retirement systems on a pay-as-you-go basis left the city with accumulated unfunded liabilities totaling $515 million in 1995.

You might think having such a huge structural deficit would lead to some type of reform.  It didn’t.  The city decided to kick the can down the road by issuing more debt.

The city issued $326 million in pension obligation bonds in 1996 and 1998 to bring down that unfunded liability.

Now THAT is amazing.  Pensions are debt.  Issuing bonds to bring down the unfunded liability is simply an accounting gimmick.  This shifts the liability from one account (pension liability) to a different account (pension obligation bond liability).  NOTHING has changed.

Simply amazing what the leaders of Pittsburgh have been able allowed to do.

But it gets even better. The mayor of Pittsburgh, Luke Ravenstahl, is fighting a state takeover.  I can think of only one reason why he would do this. Political support from those people who benefit from the excess pension benefits.  (Yes, excess.  They are in excess of what this city can and has been able to afford.)

The state wants to assume the pension obligations from the city. In return, they are seeking some structural reform.  That seems sane.  Forcing the rest of the tax payers in Pennsylvania to pay for the incompetence of the politicians in Pittsburgh should come with a few strings.

Ravenstahl last night rallied about 100 union workers to back his opposition of a state takeover.

“This bill will affect you,” he told the crowd and those watching on the city’s cable access station. “It will affect you dramatically. It’s not good for anyone, whether you live here or work here.”

It would have been good to address the structural problems back in the 1990’s.  It would be good now too.  What a clown.  But wait, there’s more…

He said a city plan under its Act 47 recovery plan would lead to solvency with no benefit changes, and warned the state’s plan “has widespread changes.”

I’m sorry, but can anyone believe him?  This pension hasn’t been properly funded in 20 years and yet without any benefit changes he can lead it to solvency? How can anyone believe that not only will they start breaking even, but will begin catching up?

They can’t.  This pension is doa.

The lesson learned here is that there is a total unwillingness by some parties to discuss a reduction in benefits – no matter how absurd the underfunding becomes.

Pennsylvania has four times more pension funds than any other state.  I suspect there will be more to write about municipal pensions in PA in the coming months.

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