Pennsylvania Auditor General Eugene DePasquale called for a series of funding and transparency measures to tackle local pension shortfalls that he said could push some localities into bankruptcy.
Improvements will require discipline at the state and local levels, he said.
"If unresolved, the municipal pension issue could cripple state and local taxpayers, reduce or totally cut local government services, and jeopardize the future for our communities and the retirement incomes of thousands of municipal employees," DePasquale said Tuesday at a press conference in Harrisburg after releasing a report from a task force that he chaired to Gov. Tom Wolf.
According to the latest actuarial data from the Public Employee Retirement Commission as of January 2013, the unfunded liability of Pennsylvania municipal pension plans has doubled in the last 10 years to $7.7 billion. About 3,240 local government plans exist in the commonwealth; 2,600 of these are municipal. Roughly one-third of Pennsylvania municipal pension plans are less than 80% funded.
DePasquale called on Wolf and lawmakers to implement his recommendations, including steeper penalties for municipalities that do not pay their full minimum municipal obligation. He also wants to disallow the use of state municipal pension aid for administrative expenditures.
The task force included former state budget secretary Mary Soderberg; former 3M Corp. vice president and treasurer Janet Yeomans; and Susan Hockenberry, executive director of the Local Government Academy.
In January, DePasquale said nearly half of the employee plans statewide are in distress. Scranton, he said, could go bankrupt within two years. He has also identified Pittsburgh, York and Jeanette as particularly troubled localities.
"While these recommendations do not contain every pension change I wanted to see -- including a move from a defined benefit to a hybrid model, and reform of state funding for communities with distressed plans -- they are an important start to talks on this gravely important matter to Pennsylvania's cities," said Pittsburgh Mayor Bill Peduto. "Most importantly they bring all parties to the table."
Pennsylvania's unfunded pension liability, pegged at around $50 billion, has triggered bond-rating downgrades over the past year. The plethora of pension-related bills before Pennsylvania lawmakers, who are at odds with Wolf over a proposed $30 billion budget, includes a measure by Sen. John Eichelberger, R-Blair Township, to put new municipal employees into a defined-contribution, 401(k)-style plan.
DePasquale also wants to require underfunded pension plans to adopt new investment and benefit standards including controls on management fees, caps on overtime and excluding accumulated leave from pension calculations.
He also suggested shifting management responsibility for underfunded plans to a shared investment manager and possibly creating a new statewide defined-benefit structure for all new hires in underfunded plans.
In addition, his task force recommends on giving Pittsburgh and Philadelphia pension plans the option of joining the other underfunded municipalities in the plan outlined above, or maintaining their own investment managers or plan administrators, with specific requirements and consequences for achieving reforms. Philadelphia and Pittsburgh represent more than $6 billion of the state's unfunded municipal pension liability.
DePasquale's report last week said that unauthorized double-pension payouts in Scranton, the seat of Lackawanna County in northeast Pennsylvania, helped dropped the funding level from 78% to 23% over the last decade. Scranton Mayor Bill Courtright, in response, proposed moving the city's nonuniformed pension plan to the state-run Pennsylvania Municipal Retirement System, an independent state agency.
Other possible transparency measures, said the auditor general, include requiring municipalities to disclose pension liability and post municipal pension costs, and excluding municipal pensions from collective bargaining.