unfunded pension obligations

Video: Public Pension Issues in 2014 and Beyond

This presentation, Public Pension Issues in 2014 and Beyond, was given by Paul Angelo at the 2014 CSG National Conference. Angelo is the Senior Vice President and Actuary for Segal Consulting

The video description reads:

Shortfalls in state-run retirement systems continue to grow, and in the 2012 fiscal year, the gap between promises to state workers and funding in the accounts reached $915 billion. Unfunded pension obligations can have significant implications for a state’s fiscal stability, including lower credit ratings, increased borrowing costs and the diversion of state resources away from other spending priorities like infrastructure and education.

Arizona City On Hook For $16 Million of Additional Pension Payments in 2015, New Calculations Reveal

Tucson’s 2015 payment to its pension systems will likely be much higher than city officials initially thought—new calculations by Arizona pension officials indicate Tucson may be on the hook for an additional $16 million.

The city thought its 2015 payment to the public safety pension system would total around $46 million. But after recent calculations, the payment will likely be upwards of $62 million.

Reported by the Arizona Daily Star:

Tucson could pay up to $16 million more for its police and fire pensions next fiscal year, according to a newly released state pension board report.

The ballooning costs are mostly the result of a recent Arizona Supreme Court decision overturning a 2011 state law intended to keep pension costs down.

The decision means Tucson could pay about $62 million for its public-safety pensions next year.

Back in February, the court ordered the Public Safety Personnel Retirement System to reimburse retirees $40 million for past cost-of-living increases and to shift $335 million to a reserve fund to cover future cost-of-living increases.

After the ruling, the state pension board had to calculate how much of a dent the court order would put in each city’s retirement funds.

It released its calculations earlier this week.

For Tucson, it drops its police and fire pensions under 40 percent funded through the plan’s investments, according to PSPRS documents.

That means taxpayers are on the hook for $763 million in unfunded pension obligations owed to existing and future public safety retirees. The two pensions hovered around 50 percent funded last year.

As a result, Tucson will likely pay over 60 cents on every dollar of salary for police and fire personnel toward pensions.

Tucson’s payments to its pension systems in 2015 are expected to total around $100 million.

Judge: Scranton Can’t Tax Commuters To Fix Pensions

Scranton’s pension funds are around 23 percent funded and less than 5 years away from collapse, according to an audit released last month.

As such, the city had planned to start raising money from a new revenue source: a tax on commuters.

But a judge shot down that idea on Wednesday. From Reuters:

A Pennsylvania judge on Tuesday rejected the cash-strapped city of Scranton’s bid to solve its municipal pension woes with a new commuter tax.

The 0.75 percent tax on commuters’ earned income was supposed to have gone into effect on Wednesday. It would have affected about 23,000 people and raised about $5 million annually, according to city officials.

Senior Judge John Braxton of Philadelphia, who heard the case in Lackawanna County Court of Common Pleas, said the city could not impose a commuter tax unless it levied the same tax on residents.

The lawsuit to stop the tax was brought by a group of aggrieved commuters who would have paid it. The city can appeal the ruling.

[…]

The funded level of its pension fund for firefighters sank to 16.7 percent as of Jan. 1, 2013, from 41.7 percent just four years earlier, the audit found. Scranton’s police pension fund is just 28.8 percent funded, and its municipal employees pension is at 23 percent. Above 80 percent is generally considered healthy.

Scranton’s pension and benefit costs have been growing by an average 15 percent annually since 2012, budget documents said.

In light of the judge’s decision, Scranton is considering other options. Those ideas include, according to the Scranton Times-Tribune:

Wait to see if the state amends Act 47:

Before deciding on a next step, Scranton leaders first want to see the outcome of changes to Act 47 pending in the state Legislature. These amendments would give financially-distressed cities more revenue alternatives, but also require an Act 205 wage tax to be imposed equally on residents and nonresidents.

Try again for Act 205 wage tax:

If the Act 205 equal-treatment provision dies, the city may consider imposing an Act 205 tax again — but this time with a relatively small increase for city residents and a larger increase for nonresidents, as other cities have done, said Mr. McGoff and city Business Administrator David Bulzoni.

Seek bankruptcy protection or a receiver:

Having the city seek Chapter 9 bankruptcy protection is not under consideration, Mr. McGoff said. It’s not clear the state would allow such a move, anyway, because Harrisburg’s attempt a few years ago was blocked and a receiver was installed there instead.

The city will reconsider the commuter tax in 2015, except this time they’ll consider levying it on everyone, including residents.

Chicago’s Pension Hole Gets Deeper

A new report from the watchdog group Civic Federation reveals that Chicago’s unfunded pension obligations have tripled since 2003 and now stand at $37 billion.

Details from the report, summarized by the Chicago Sun-Times:

The report found the gap between current assets of the ten funds and pensions promised to retirees had risen to $37.3 billion.

The 10 funds had an average funding level of 45.5 percent in 2012, down from 74.5 percent a decade ago.

The firefighters pension fund is in the worst shape, with assets to cover just 24.4 percent of future liabilities. The CTA pension fund is in the best financial condition at 59 percent.

Government employees did their part by contributing the required portion of their paychecks to their future pensions. But the government contribution fell nearly $2 billion short of the $2.8 billion required to cover costs and reduce a portion of unfunded liabilities over a 30-year time frame, the report concludes.

Investment income didn’t help. And the future outlook is bleak, thanks to a “declining ratio” of active employees to beneficiaries.

In 2012, the 10 funds had 1.11 active employees for every retiree, down from a 1.55 ratio a decade ago. The police, laborers, Metropolitan Water Reclamation District, Forest Preserve and CTA funds all had more beneficiaries than active employees in 2012.

Counting statewide funds, the pension liability amounts to $19,579 for every Chicago resident.

Chicago is required by law to make a $550 million contribution in 2016 to two police and fire pension funds. Mayor Rahm Emanuel presumably needs to raise that money through various taxes. But he has repeatedly promised not to raise property taxes, and more recently said he won’t raise gas or sales taxes, either. From the Sun-Times:

Mayor Rahm Emanuel on Wednesday ruled out pre-election increases in property, sales or gasoline taxes but pointedly refused to say whether he would steer clear of any other taxes, fines or fees.

“We’ve balanced three budgets in a row holding the line on property, sales and gas taxes and finding efficiencies and reforms in the system. . . . We eliminated the per-employee head tax . . . and we put money back in the rainy day fund,” the mayor said.

“On my fourth budget, we will hold the line on property, sales and gas taxes and put money back in the rainy day fund and continue to look at the system as a whole to find efficiencies and reforms and things that were duplicative where you could do better.”

This past summer, Chicago hiked its telephone tax by 56 percent.

Photo: Pete Souza [Public domain], via Wikimedia Commons