Pennsylvania Law Allows Scranton to Pay Fraction of Required Pension Contribution

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Two Pennsylvania laws have allowed the city of Scranton to short its pension systems by about $10.9 million since 2009 – or over 22 percent of the city’s actuarially-required contributions over that time period.

Scranton used this tactic because the city needed money to plug budget shortfalls elsewhere – but now bigger payments await the financially troubled city in the future.

The laws that allow the practice are called Act 44 and Act 205. More details from the Scranton Times-Tribune:

Act 205 allowed municipalities to reduce their MMOs by employing an accounting tactic known as actuarial smoothing, which spreads out debt and stock market losses over a long period, up to 15 to 30 years.

But the breaks did not stop there.

Scranton also benefited from Act 44, which allowed municipalities with financially distressed pension plans to reduce the MMO by 25 percent for up to six years. Scranton has taken the reduction each year since 2009.

In 2014, for instance, the actuary determined the city needed to contribute $15.7 million,but the Act 44 reduction allowed it to put in just $12.1 million.

The acts were designed to provide temporary relief for municipalities hit by the stock market crash, which caused their MMO’s to skyrocket, said James McAneny, executive director of the Public Employee Retirement Commission. Scranton’s plans were particularly hard hit, losing a combined total of $21.3 million in the crash, PERC records show.

The problem, he said, is putting off the payments only compounded the pension plans’ financial woes.

“It defers the payment but it doesn’t make it go away,” Mr. McAneny said. “The obligation to make the payment is still there . . . If you are putting it off, all you are doing is facing a bigger payment later. If you can’t pay it now, what makes you think you can pay it later?”

Former Mayor Chris Doherty said he knew the city was putting in less than the actuary determined was required, but he said he felt safe doing so because the reductions were state-approved.

“It’s not like a choice I made that I’m going to deliberately underfund it,” Mr. Doherty said. “We didn’t have the money. We funded it at the rate they told us to fund it.”

A state audit earlier this year revealed that Scranton’s pension system could become broke in as soon as 3 to 5 years.

Scranton Levies Commuter Tax, Considers Selling Sewer System to Cover Pension Debt

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The Pennsylvania city of Scranton is scrambling to avoid bankruptcy brought on by its mounting pension costs, and in the process is turning to some less-than-conventional sources of revenue.

The city has already levied a commuter tax on non-residents who drive into Scranton for work. Now, the city is considering selling its sewer authority. From Bloomberg:

The former manufacturing community will tax commuters starting next month and may sell its sewer system to buttress its retirement funds. The city has 23 cents for every dollar in retiree obligations, down from 47 cents in 2009, according to state data. Without a fix, Scranton may go bankrupt in less than five years, said Pennsylvania Auditor General Eugene DePasquale.


Scranton’s pension costs are rising. The city’s contribution next year will reach $15.8 million, from $3.4 million in 2008, data from the city and the auditor general show. Pension expenses will take up 16 percent of the budget in 2018, from 9 percent in 2006, according to a July presentation by Hackensack, New Jersey-based financial consultant HJA Strategies LLC.

The seat of Lackawanna County, Scranton passed a 0.75 percent income tax on nonresident commuters effective Oct. 1. The measure would generate at least $5 million annually, based on county data on tax collections, and the funds would go toward pensions, [city business administrator David] Bulzoni said.


Another option is to sell the sewer authority, which has started a review of the proposal, Bulzoni said. In addition, municipal officials this month met with union representatives to discuss contract features that are depleting pension assets, Bulzoni said. He declined to elaborate because he said some solutions will involve bargaining.

The city’s pension funds were collectively 23 percent funded in 2013.

Pennsylvania Auditor General Calls For “State-Wide Solution” After Audit Reveals Scranton Pension System Could Be Broke Within 3 Years

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After a two year audit, Pennsylvania’s Auditor General announced today that Scranton’s pension system could become broke in 3 to 5 years—and forcefully indicated that Scranton was symbolic of larger, state-wide pension funding issues.

On Scranton, the Times-Tribune reports:

That dire prediction [3-5 years] could be optimistic, as the pension funds face paying out as much as $10.5 million owed to retired police and firefighters because of the $21 million back pay court award to active members. The auditor general’s office did not evaluate the impact of the award in its audit released Wednesday.

With a funding ratio of just 16.7 percent, the city’s firefighters fund is in the worst condition of any plan in the state, Mr. DePasquale said, and will be unable to pay benefits in less than 2½ years. The non-uniform fund isn’t much better, projected to be insolvent in 2.6 years, while the police fund has less than five years.

The sobering news, presented at a press conference at City Hall, is contained in an audit Mr. DePasquale’s office conducted of the funds’ condition from January 2011 to January 2013.

The Auditor General said the only fiscally sustainable way forward was to reform the state’s pension system. From the Times-Tribune:

He’s called for several measures, including consolidating plans into a statewide system and increasing funding to municipalities with distressed plans.

“We don’t see any way this can be fixed by Scranton alone,” Mr. DePasquale said. “I believe strongly that a statewide solution is needed.”

While Gov. Tom Corbett and the state Legislature debated state pension system reform this summer, it has yet to address the pension crisis some municipalities face. When Mr. Corbett visited Scranton earlier this month and a reporter asked about the city’s pension crisis, he declined to weigh in.

But that reform doesn’t seem likely to come.

Pension360 covered this week Corbett’s futile efforts to kickstart pension reform. Polls have indicated the voters aren’t as engaged by pension issues as they are other issues.