The Pennsylvania Senate today is set to vote on a bill that would help Philadelphia balance its fiscal 2010 budget and allow the state to oversee municipal pension funds that are less than 50% funded.
If approved by the upper chamber, the measure would then return to the House for deliberation on the bill's amendments. Whether the House will approve the changes depends upon what those alterations are, and House members yesterday were in discussions with the Senate to work out amendments that would be favorable to both chambers, according to Nora Winkelman, chief counsel to the House Democratic Caucus.
"There is some discussion over at the Senate now about whether to amend some of it even before it comes over here," Winkelman said yesterday. "And we're waiting to see how those discussions work out. So it really remains to be seen because we're not sure exactly what it's going to look like when it gets here."
If the House approves the amendments, it would then head to Gov. Edward Rendell's desk for his consideration.
Philadelphia has until Aug. 31 to gain legislative approval to temporarily boost its sales tax to 8% from 7% and allocate smaller pension contributions this year and next. Absent those changes, the city would be forced to lay off 3,000 employees, including 1,000 police jobs, cut spending by $250 million, and reduce services. For instance, trash collection would occur every other week instead of every week.
In order for the House to vote on the amendments this week, Speaker Keith McCall would need to call a formal session, as the lower chamber does not have a voting session scheduled for this week.
"We're fully cognizant of that and the speaker is as well," Winkelman said. "So a lot hinges on where those discussions go [Tuesday] in the Senate and what this thing is going to look like when it gets here."
The Pennsylvania Intergovernmental Cooperation Authority, which oversees the city's finances, gave Philadelphia until Aug. 31 to receive legislative approval for the sales tax increase and the pension changes. After that, the city would need to operate without the $10 million per month it expects to gain from boosting the sales tax by one percentage point and increase its fiscal 2010 pension contribution by $155 million.
The Senate Finance Committee Monday evening approved the Philadelphia bill, HB 1828, with amendments. The Senate Appropriations Committee is set to vote on the measure today before it heads to the full Senate for a final vote.
The Finance Committee amendments to HB 1828 include requiring all local pension funds that are less than 50% funded to operate within the Pennsylvania Municipal Retirement Board. Municipalities would continue to make yearly pension contributions, but the state would have control over retirement benefit negotiations.
Many cities and towns will see dramatic increases in their pension contributions next year as investment earnings on the retirement funds have decreased.
Rob Dubow, Philadelphia's finance director, said the city's retirement fund could fall right below the 50%-funded mark when factoring in fiscal 2009 investment losses, but the city would not enter into the state's pension system. Philadelphia's last actuarial report pegged the funding ratio at 55%, Dubow said.
In addition, HB 1828 would allow the city to amortize its unfunded liability over 30 years instead of the current 20-year plan.
Increased sales tax revenue would go towards retirement costs and the city must freeze pension benefits for current employees. The bill also requires Philadelphia to submit a revised pension plan for new hires by Sept. 10, with the cost of that plan not to exceed 75% of its current plan.
"It looks like we have an alternative way of handling it," Dubow said. "So it does not look like we have the same takeover as other municipalities would."
Philadelphia Treasurer Rebecca Rhynhart said if the legislature approves the sales tax increase and the pension deferrals, the city would head to market with its planned $275 million tax and revenue anticipation note deal as soon as possible. Citi is the book-runner on that transaction. Janney Montgomery Scott and Loop Capital Markets are co-managers.
"We would move forward as quickly as possible," Rhynhart said. "But we're estimating that it will take probably three to four weeks from the time of passage to when we can price the deal just because it takes time to go to the rating agencies and to get everything together."
