Pennsylvania House members will now consider amendments to a bill that would balance Philadelphia's fiscal 2010 budget and place any local pension funds that are less than 50% funded, including Pittsburgh's retirement system, under state oversight.

The state Senate approved the measure yesterday in a vote of 38 to 9. House lawmakers will now weigh in on amendments to HB 1828, but Nora Winkelman, chief counsel to the House Democratic Caucus, said labor groups have raised their concerns over potential reductions in retirement benefits for municipal employees.

"There are still some issues that the unions have with it," Winkelman said. "So I just don't know how it's going to play out, frankly. We're in a wait-and-see mode."

Philadelphia has until Aug. 31 to receive legislative approval on a proposed sales-tax hike and changes to its pension system, which are included in HB 1828, or implement drastic service and workforce reductions to cut expenditures. The city has been operating without a balanced budget since July 1 and stopped paying its vendors last month.

House Speaker Keith McCall has yet to call a formal session in order for the lower chamber to vote on the amendments prior to Aug. 31.

While the bill helps balance Philadelphia's fiscal 2010 budget and avoid roughly 3,000 layoffs of city employees and $250 million of cuts to the current spending plan, Senate Republicans, who control the upper chamber, amended the bill to add their pension reform initiatives to the measure.

Those changes include freezing retirement benefits for current Philadelphia employees at present levels and reducing pension benefits for future hires by 20%. The bill requires the city to file a revised pension plan by Sept. 10, with that new plan not to exceed 80% of current retirement benefits.

A defeated amendment had offered steeper pension reductions, with the city cutting benefits for future employees by 25%, and submitting a new plan that would be no larger than 75% of its current pension plan.

In a letter yesterday to Senate Majority Leader Dominic Pileggi, Philadelphia Mayor Michael Nutter expressed the need for the Senate to pass HB 1828. While Nutter does not support the pension amendments, the mayor said he believes Philadelphia needs the bill to pass so that the city can end its fiscal 2010 budget limbo and move forward.

"Even though this bill now contains new amendments that I neither requested nor advocated for, the city of Philadelphia needs passage today by the Senate of HB 1828," Nutter wrote. "The short- and long-term financial and operational interests of the [city] are at stake and the tools essential to the city's financial recovery are embodied in HB 1828. ... and therefore, I support this bill."

The measure allows Philadelphia to defer a portion of pension payments in fiscal 2010 and fiscal 2011; up to $155 million and $80 million, respectively. The city would then pay 8.25% interest on the delayed allocations. If it postpones $90 million or more, the city would then repay at least $90 million by June 30, 2013. Any remaining deferred pension costs would be repaid by June 30, 2014.

In addition, the city would increase the amortization period for its pension liability to 30 years from 20 years.

Along with the retirement benefit changes, HB 1828 allows the city to boost for five years its sales tax to 8% from 7%, with all additional sales tax receipts paying down pension costs.

Without the sales tax increase and the alterations to its retirement plan, Philadelphia would be forced to cut its payroll by roughly 3,000, including 1,000 from its police force, and cut the fiscal 2010 budget by $250 million. Overall, it would need to reduce its five-year fiscal plan by $700 million.

Adding pension reform initiatives slowed the bill's progress through the legislature. In addition to Philadelphia's pension issues, the bill requires any municipal pension plan in the state that is less than 50% funded to enter into the Pennsylvania Municipal Retirement Board. Pittsburgh's pension system would fall under state oversight, as it has a funding ratio of 28%.

Local governments would continue to pay yearly pension contributions, but the state would take over retirement benefit negotiations. The initiative would ease pension costs at the local level by allowing municipalities to reduce pension contribution payments.

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