Allentown, Pa., Mayor In Talks With Unions to Curb Pension, Health Costs

The mayor of Allentown, Pa., says he’s been sitting down with union leaders to rework its labor agreements in a bid to keep the financially troubled city out of Act 47 — the state’s distressed municipalities program.

Mayor Ed Pawlowski said in an interview that the aim is to ease municipal pension and health care costs in Pennsylvania’s third-largest city. The collaboration between city officials and union leaders runs counter to media reports suggesting Allentown was headed into Act 47.

Pawlowski said generous labor contracts the unions obtained from prior administrations have the potential to push the city towards fiscal imbalance if they’re not renegotiated.

“It’s very simple, you can’t have 3% or 4% annual increases that are built into your contract” when tax revenue is stagnant, Pawlowski said. “You don’t need to be some accounting super-genius to realize that doesn’t work.”

Allentown’s minimal municipal obligation for pensions is poised to rise to $15.5 million in fiscal 2011, which begins Jan. 1, from $6.5 million in 2005. Health care expenses have gone up $3 million since 2005. “In the immediate future, are we in bad shape? No,” Pawlowski said. “Are we going into Act 47? No.”

The growth in labor-related expenses is simply unsustainable in the log-term, he said. That has been his message to labor leaders. He said  he has told them “before we get to a point where we’re in a situation that no one likes, let’s work together to try to reduce some of these costs.”

Allentown tapped into roughly $1 million of reserve funds to help balance the current $80 million general fund.

The city will begin working with Public Financial Management Inc. to craft a five-year fiscal plan to help address growing labor costs and other expenses. Pawlowski expects that plan to be completed in six to seven months.

Pennsylvania will pay PFM for its services to Allentown under the state’s early intervention program, which is the initial phase local governments go through before applying for Act 47. The city also used the early intervention program in 2004, when PFM created an earlier five-year fiscal plan for Allentown. The city did not enter into Act 47 at that time.

“A lot of these older urban cities in the commonwealth have been under pressure for a number of years because of their stagnant tax bases and higher costs of services and imbalance of revenues versus spending,” said Standard & Poor’s analyst Karl Jacob.

To help end structural deficits and balance earlier budgets, Allentown implemented a $52 million emergency and municipal services tax in 2006, issued $10 million of deficit financing that year, and restructured debt in 2007. The city has $110 million of outstanding debt.

Standard & Poor’s rates Allentown BBB-plus with a positive outlook. The agency is currently reviewing the city under its normal surveillance cycle, Jacob said. Moody’s Investors Service in late April assigned a recalibrated A1 rating to the city, which was once an icon for industrial America. The prior rating was Baa1.

Pawlowski said that six months into the current fiscal year Allentown’s expenses are $1 million under-budget and revenue collections are $7 million above estimates. “A lot of the revenue comes in early,” he said. “Where we will be at the end of the year — I don’t know.”

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