Rep. Seth Grove (R-Dover)
Rep. Seth Grove (R-Dover)

Two pension crises vie for attention in Pennsylvania, though the one playing out in cities across the commonwealth might be overshadowed by the statewide problem most vexing to lawmakers.

As the state struggles to cover the mounting cost of pensions long-ago promised to retired state workers, municipalities such as York City also find an increasing amount of their annual budgets being consumed by pension debt before they can even think about new spending for community improvement.

The problem can be proportionately bigger for municipalities, threatening to drive some into insolvency, but city officials disagree about how to correct the problem.

A study from state Auditor General Eugene DePasquale, who formerly represented York City in the state House, showed the state's municipalities are facing $6.7 billion in unfunded pension liability.

For York City, that amount is about $50 million. Total pensions cost about $6 million per year out of the city's $100 million budget, and the cost is expected to increase to more than $8 million next year, said Michael O'Rouke, the city's top financial officer.

But while York City Mayor Kim Bracey was among a group of Democratic mayors in Harrisburg this week to laud a reform proposal from Rep. Seth Grove, R-Dover Township, O'Rourke said the legislation is unfair and won't pass muster with public safety unions — some of which have already taken positions against it.

The plan: Grove's proposal, House Bill 1581, is awaiting a vote in the House's Local Government Committee.

Under the plan, current municipal employees including police and firefighters would continue under their existing pension benefits, but new hires would shift to a more "financially sustainable" model.

The hybrid plan includes aspects of both defined benefit and defined contribution models and would create revenue for municipalities to pay down their old pension liabilities, he said.

York City Mayor Kim Bracey
York City Mayor Kim Bracey

Grove said his plan would also eliminate the employee practice of "spiking" pensions by, for example, working a lot of overtime just before retirement so the year of final salary, upon which pensions are based, is higher.

Grove said about a third of the state's municipal pension plans are considered "distressed," and the problem needs to be solved before it's passed along to already burdened property taxpayers.

Opposition: O'Rourke said there's no question city fire and police pensions are "too much."

"What they get now is luxurious," he said. "But what (Grove and his bill's supporters) want to go to is extreme in the other direction."

City firefighters can retire at age 50 after 20 years and 6 months of service and get 50 percent of "what you're earning the day you walk out the door," O'Rourke said.

They also get a yearly increase that's about equal to whatever raise the working firefighters get that year.

But O'Rourke said Grove's proposal is unfair to newly hired police and firefighters, burdening them with paying off an unfunded liability they had no role in creating.

O'Rourke said a contracted actuary evaluated Grove's plan to determine its effect on city personnel, and the benefit to new employees would be only 65 percent of the current plan.

Compared to the current police and fire pensions, new hires would have to work five years longer (25 years) and retire five years later (at age 55), O'Rourke said.

The new employees would also have to contribute more money to their pensions, but York City would be able to keep any money the pension fund earns (through investment) over a certain yield that's guaranteed for the employee's account, O'Rourke said.

That's a feature municipalities typically applaud, because it would allow them to pay down their pension debt and avoid increasing taxes to pay for it, Grove said. That should be a feature for any city, such as York, which has the highest property taxes in the county and "no budgetary relief in sight."

While O'Rourke said Grove's plan is unfair, he said the city won't be able to indefinitely maintain pension payments under the current system.

"They're crushing and I think they're driving middle class people out of the city," he said. "But we need to be able to attract good job candidates. These are people you're going to give a gun and a stick and tell them they can use it on you if you misbehave."

Grove responds: Grove said city employees currently get pension payments of 50 percent of their final salary, and they would lose 8 percent under his proposal.

But he said city firefighters and police officers would still be able to retire earlier than many people, and most who currently retire end up taking another job because they're still young enough to work a job that might not have the long hours and physical demand of their public service careers.

"This is not draconian whatsoever," Grove said. "(O'Rourke) hit the nail on the head. Luxurious pensions have caused a huge problem in York City."

If the city doesn't soon do something about its pension problem, it will become worse; city taxpayers will be forced to fund the pensions and there will be less money to hire or maintain police and firefighters, he said.

— Reach Christina Kauffman at ckauffman@yorkdispatch.com.