Scranton disregarded pension laws in paying double benefits to 35 employees over the last 12 years at a cost of $2.9 million, Pennsylvania Auditor General Eugene DePasquale said Wednesday.
Doing so at least partially contributed to the dire financial condition of the city's non-uniformed pension plan, DePasquale told reporters at a Wednesday press conference in the 77,000-population Lackawanna County city. Scranton's non-uniformed employee pension plan is only 23% funded, down from the 78% when then-Mayor Chris Doherty initiated an early-retirement incentive.
DePasquale's report says city officials neglected to properly analyze, document and implement the retirement benefit incentive provided to its non-uniformed employees who retired in 2002 and others in 2007.
"Our detailed review of the double-pension deal revealed a total disregard for proper pension modification procedures by those responsible for the plan—the mayor, City Council and the pension board," DePasquale said. "We now have a clearer picture of how Scranton's non-uniformed pension plan got to this point."
DePasquale has labeled the fund severely distressed. He has said the past few months that Scranton could go bankrupt in two to five years.
Mayor William Courtright said city personnel would continue to work with DePasquale and other city officials. "The degree to which these improper benefits have hurt Scranton is significant," said Courtright, who succeeded Doherty in January 2014. "As I have said before, we will not tolerate abuse."
Courtright said the city would explore options to mitigate the negative effect of the payouts and implement safeguards.
"DePasquale's report only serves to further prove that the inmates are running the asylum in Scranton," said Gary Lewis, a private-sector financial consultant and former Scranton mayoral candidate. "The most common theme implicit to all of Scranton's problems — from the unsustainable debt, to the triple-digit annual tax hikes to the pension crisis — is a lack of proper internal controls in the finance unit of the city 'business.' "
Auditors from his staff reviewed legal documents, correspondence, ordinances, and meeting minutes of the pension board and city council. Three weeks ago they discovered tapes of council meetings from 2003 — though some were inaccurately labeled, DePasquale said. That forced a delay in the investigation, which began in February.
"We found no written record of the double-pension benefit offer," DePasquale said, noting that any proposed change in benefits should be documented. While the city did conduct various cost studies, said DePasquale, most were prepared after the employees actually retired and no evidence exists that the studies included specific parameters of the offer.
"Based on our review of meeting minutes and documents, it is hard to imagine that city leaders were not aware of the increased benefit incentive. However, the doubling of the pension benefits was not approved in any of the four ordinances passed after-the-fact in 2003. City officials did not follow applicable pension laws and appropriate procedures to understand the short- and long-term implications of the incentive before it was offered and implemented," DePasquale said.
His report found that the double-pension benefits for the 25 employees who retired in 2002 — and 10 additional employees who were offered the benefit in 2007 following a lawsuit — adds an extra $266,880 annually to the city's pension costs. It also said that the total of annual payments for these 35 retirees is $533,760, or 53% of the $1,076,140 total annual benefits paid to all 121 beneficiaries of the plan.
Scranton's pension board concluded a hearing on the matter in late May.
DePasquale recommended the city complete its review of the pension benefits being paid to the 2002 and 2007 retirees and determine eligibility, double-pension obligations, how much the city should claw back.
He also called on city leaders to obtain and document their review and analysis of cost studies before approving proposals, among other measures that emphasize accuracy, compliance and transparency. He also urged Scranton to continue its efforts to develop a long-term strategy to grasp the pension's severely distressed status.
"None of these findings should be surprising — the city's perennially late audits almost always include discussion of similarly egregious control failures, such as the recognition of interfund transfers as revenue," Lewis added. "My only concern with DePasquale's plans and comments to this point is that there is little to no discussion of funding mechanisms, which likely means more pain for the already overburdened taxpayers as they spend the next 30 years digging out of this financial hole."
DePasquale's attention on the unfunded liability of municipalities spans the state. In January he labeled 562 municipal pension plans distressed, with a combined liability of nearly $8 billion. He is also chairing — at Gov. Tom Wolf's behest -- a task force on local pension liability. That is also due out within weeks.