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Pennsylvania Auditor General Eugene DePasquale used York City and two other municipalities as an example to warn officials against improper use of a special tax revenue used to supplement distressed pensions.

At the Pennsylvania Municipal League’s 120th annual summit in Gettysburg on Friday, Oct. 4, he referenced a May 2019 audit of York City covering Jan. 1, 2016, through Dec. 31, 2017, which highlighted the city's errors in funding its employee pensions.

DePasquale said one of the subjects at the summit had been pensions, so he thought it was important to mention that many municipalities had struggled with proper use of the earned income tax, which can be utilized to pay down distressed pension plans.

"We just wanted to make all the cities and municipalities aware that this was an issue," he said, when reached Friday afternoon.

There had been enough cases of misuse that it’s possible officials were unaware of how to correctly use the tax under the law, he said. For example, the tax can be used to pay down pensions but cannot replace general fund contributions.

"I believe our audit will help the York City situation going forward," DePasquale said, noting officials have been very cooperative.

Under the previous administration, the city increased its EIT — which was supposed to go toward covering the pensions — but it went into the city’s general fund instead, said York City Mayor Michael Helfrich.

"We discovered that under the last administration that these numbers were calculated incorrectly," Helfrich said, adding that until the city hired a new business administrator, those mistakes continued.

"As soon as we learned about it, we connected with the auditor general’s office," he said, to correct the issue.

Because the audit was released this spring, the city's 2019 budget had already been passed, but the 2020 budget will reflect proper numbers, Helfrich said.

Many municipalities across the state are also struggling with large pension liabilities, so misuse of the tax adds to that issue.

More: Rising pension costs a key concern for York City Council candidates

The stock market has improved since 2009, helping many municipalities begin to rectify their large pension liabilities, DePasquale said. In York City’s case, it will take a long time.

"York City, like most others, has higher pension debt than other, wealthier communities," he said, acknowledging that for at least two decades, mayors of both parties have been trying to make up for bad financial decisions in the 1960s and 1970s.

The city had $74 million in unfunded pension liabilities in 2017 — roughly 71% of the liabilities in the county, according to state data.

More: Municipal pensions: A problem that just won't go away

"York, we recognize, is in a tight spot here," he said. "It is a long haul."

Helfrich said it will cost the city an extra $1 million or more per year to rectify the loss of the EIT money that had been going into the general fund. "It hurts a lot," he said.

The auditor general's statement at the summit on Friday served as a notice for municipalities to ensure they are applying the tax correctly. Though DePasquale did not dole out consequences this time, he said that in the future state aid could be withheld — though he said he would do so cautiously.

"It has the possibility of making the situation worse and could punish other taxpayers," he said, adding that he typically only takes that measure if he sees outright corruption or criminal activity. 

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