Report: Philadelphia faces pension crisis

January 23, 2008 12:39:20 PM PST
The city is facing a looming financial crisis, as health care and pension costs for municipal workers are rising faster than revenues and could potentially threaten the most basic services, according to a new report.

The report, released Wednesday by The Pew Charitable Trusts and Economy League of Greater Philadelphia, concludes that serious troubles lie ahead without swift and substantial change. It also suggests that a weakening economy will make the road rougher still.

"The city cannot just throw more money at pensions and health care without raising taxes or immediately strangling other services," the report states.

"But letting the problems slide on into the future means that the percentage of the city's budget devoted to pensions and health care will continue to grow, leaving less money, each year, for schools, roads or public safety."

The report found that city revenues aren't rising fast enough to keep up with employee pension and health care costs. Those costs made up 16 percent of the city's 1998 budget but - if left unchecked - could rise to 28 percent of the budget by 2012.

In 2006, there were more city pension recipients (33,900) than city workers (28,700) and the gap is expected to widen in coming years.

The amount of city employees' pensions, ranging from around $29,000 to $40,000, are similar to other cities, but Philadelphia city workers contribute less of their own money than workers in other cities. For example, municipal employees in San Francisco contribute 9 percent to their own pension plans, compared with 1.85 percent for Philadelphia city workers.

The report's authors place much of the blame on the city's paltry contributions to the pension fund during the 1970s and 1980s and what they call a "poorly timed" decision to issue $1.2 billion in bonds to reduce unfunded liability.

Soon after the city borrowed the money in 1999, the dot-com meltdown sent the stock market tumbling.

Regarding health care, Philadelphia's situation is extreme even compared to other big cities grappling with similar challenges, according to the report.

Health care for municipal workers cost the city more than $9,800 per employee in fiscal 2006 - a figure second only to Detroit. When it comes to health care costs for retirees, Philadelphia tops the list of 10 cities studied at more than $9,100 per retiree.

The report's suggestions include reducing benefits and raising retirement age for new employees, auditing the pension system, and increasing employees' pension contributions through collective bargaining agreements.

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