Dunmore taxpayers have paid more than $3.8 million toward the borough's police pension fund since 2005 to cover exorbitant debt incurred partly from a sweetheart deal that provided illegal benefits to 12 officers who retired between 1992 and 1995, a Sunday Times investigation shows.
Payouts include $2.8 million pumped into the pension fund, plus nearly $1 million more paid to officers directly from the borough's general fund to cover the cost of benefits that are ineligible for state reimbursement because they violate state pension law.
Despite the influx of cash, the fund remains in serious financial distress, recently forcing council to take out a $5 million loan that will be used to reduce the staggering debt that has amassed in the police fund, as well as the firefighters and nonuniform workers pension funds, which also are financially troubled.
Council Vice President Michael McHale said he is confident the loan will get the funds on the right financial track. But he acknowledged it does nothing to relieve taxpayers of the financial burden heaped upon them by a retirement incentive for police officers approved by council members in 1992 - a contract that will haunt Dunmore taxpayers for years to come.
Many of the benefits included in the incentive exceeded those permitted under state pension law, including a provision that awarded officers a monthly payment equal to 70 to 80 percent of their final year's salary, according to several audits by state auditor general's office. The pension law, known as Act 600, limits the calculation to 50 percent of the average monthly salary officers earned in their final three years of employment.
Other unauthorized benefits cited in the audits include:
- The widow of a retired officer receives $192 per month more than she is entitled to collect, because a lump sum payment of back salary from 1988 was improperly included in her husband's final year's salary used to calculate his pension. The borough also wrongly granted her a lump sum payment of $54,984 in back benefits.
- The final salary used to calculate the pensions of some of the officers was artificially inflated by including a lump sum buyback of unused sick time, allowing them to receive more money than they are legally entitled to claim.
- Officers who retired when they were first eligible improperly receive a $100 monthly bonus, while other officers were improperly permitted to count part-time service toward the years needed to qualify for a pension.
Other municipalities throughout the state, including two in Lackawanna County, have also been cited by the auditor general's office for providing illegal benefits in violation of Act 600.
The latest audits, released in 2012, show Carbondale is providing a 2.5 percent cost of living increase to several firefighters in violation of Act 600, while Dickson City improperly included lump sum payments in determining the pension benefits of several police officers.
However, the violations found in Dunmore's police pension are far more extensive than those cited in the other communities.
Retirement jackpot
A review of documents shows the incentive provided exceptionally lucrative pension payments to the 12 officers and their widows, 11 of whom continue to receive payments today.
In one case, former police chief Frank Occulto receives a pension that is nearly equal to his final year's salary. Borough records show Mr. Occulto collects an annual pension of $31,350. His salary when he retired was $33,179, according to pension documents.
Mr. Occulto's pension is modest compared to some of the other retirees. The top earner is Joseph Carra, who receives $47,161 annually. Five other officers - Joseph Donly, John McCormick, Anthony Rinaldi, James Capoccia and Robert Dee - receive annual pensions ranging from roughly $29,000, to $39,000, according to borough records.
The pensions of four other officers - Santo Quatra, Michael Giumento, Robert Parks and Martin Walsh - who are now dead, are collected by their widows, who are entitled to 50 percent of their husbands' pensions. The payments range from roughly $13,000 to $15,000 annually. Payments to officer Frank Margotta have ceased as both he and his wife are dead.
The retirees/widows also collect another check in addition to their pension payments that is paid directly from the borough's general fund. In 2012, the borough paid out $125,746 to the 11 retirees/widows still eligible. A breakdown on how much was paid to each recipient was not immediately available. Since 2005, the borough paid a total of $971,506 to the officers from the general fund, according to borough records.
The excessive benefits seriously impacted the pension fund's viability, increasing its liabilities by $923,243 as of 2010, according to the latest auditor general audit released in May 2012. Those costs, combined with investment losses and other factors, forced Dunmore to significantly increase the amount of taxpayer money paid into the fund to keep it solvent, known as the minimum municipal obligation, or MMO.
Since 2005, the MMO increased more than three-fold, from $162,942 in 2005 to $571,369 in 2012, according to audit reports and borough records.
Despite that, the auditor general's report shows the fund is woefully underfunded, with assets of $2.74 million compared to liabilities of $6.36 million as of Jan. 1, 2009, the latest date for which figures were available. That qualifies it as a "severely distressed" plan as defined by Pennsylvania's Public Employee Retirement Commission, a government agency that monitors the financial condition municipal pension plans statewide.
The state helps municipalities cover pension costs through yearly distributions of state aid. It does not cover any portion of the cost of benefits deemed to exceed thresholds set by Act 600, Those municipalities, like Dunmore, must cover those expenses from their general fund. The auditor general's office has repeatedly urged council to end the excessive benefits. Unfortunately, it can't, Mr. McHale said.
Illegal, but binding
In 1996, council filed a lawsuit in Lackawanna County Court that asked a judge to declare the borough not responsible to pay the benefits based on the auditor general's findings that they exceeded Act 600 limits.
Jay Myers, a Columbia County senior judge who was specially appointed to hear the case, dismissed the lawsuit, citing prior appellate court rulings that state a municipality can be bound to pay benefits - even if they violate state law - if it voluntarily agreed to them in collective bargaining.
In his ruling, Judge Myers noted that the 1992 Dunmore council agreed to provide the retirement incentive in exchange for the police union's concession that removed a minimum manning provision from the contract, covering 1993-94 and was later extended through 1995. Because of that, it could not unilaterally remove the benefit, the judge said.
The judge also noted language in the contract stated that if the benefits were found to be in violation of state law, the borough would pay the costs out of the general fund and would hold the officers harmless.
The ruling was a blow to the borough, but it could have been worse. Judge Myers initially ruled the borough was obligated to continue offering the incentive to officers under the 1996-97 union contract. That portion of the decision was later overturned on appeal. Benefits for officers who retired after 1995, and all future retirees, are now in compliance with Act 600.
However, the borough remains obligated to pay existing claims to the officers who retired between 1992 and 1995, with taxpayers footing part of the bill, Mr. McHale said.
"We agreed to it with the officers at the time," he said. "There is nothing we can do. Our hands are tied by these deals made in the past."
Costly bargain
Mr. McHale said council set aside $155,000 in the 2013 budget to cover the unauthorized benefits. He expects it will be necessary to set aside a similar amount each year in addition to the MMO that must be paid.
Members of council when the contract was approved on Nov. 10, 1992 were Michael Carr, Paul Nardozzi,, Dominick Verrastro, Joseph Tomko Jr., Patrick Loughney, the late Michael Mashurak and James McHale, who is the brother of current councilman Michael McHale..
News stories at the time the contract was approved quote Mr. Carr and other council members saying the incentive would save the borough money by enticing older, higher paid full-time officers to retire, allowing council to hire lower paid, part-time officers to replace them.
It's not clear whether the 1992 council members understood the benefits violated state law, or if they realized the costs that would come decades later. Mr. Loughney, now the borough mayor, and Mr. Carr, did not return messages seeking comment. Mr. Tomko, Mr. Pinto and Mr. Verrastro could not be reached for comment. James McHale said he could not recall specifics because so much time has passed.
Mr. Nardozzi said the borough solicitor at the time, Armand Olivetti Jr. of Scranton, assured council the benefits were permitted. He said he does not recall Mr. Olivetti ever telling council they exceeded Act 600 limits.
"I read Act 600 and was skeptical about it, but Armand said it was legal," Mr. Nardozzi said.
Mr. Olivetti said council could offer the benefits, but insisted he made it clear they exceeded Act 600 and would have to be paid from the general fund.
"There is no doubt you can only pay from the pension fund what state law allows. Anything above that has to come out of the general fund," Mr. Olivetti said. "That was my explanation. Whether they understood it, you have to ask them."
Mr. Olivetti said council opted to go ahead with the deal, believing the savings would be so great that they would compensate for any money that had to come out of the general fund.
"They priced it out and thought they'd save money doing it," he said.
Michael McHale said he understands the 1992 council's reasoning. The idea may have worked, if subsequent councils had not hired full-time officers to fill the spots of the retirees, he said.
"They hired more guys, so the savings that were going to be realized were not realized and we got stuck" with the pension benefits, Mr. McHale said.
While the agreement has caused problems for the borough, Mr. McHale stressed he does not fault the officers who took the deal.
"The officers have done nothing wrong. They did what anyone else would do," he said. "It was prior council members who, in my mind, made an improper decision. Unfortunately, we have to abide by it."
Contact the writer: tbesecker@timesshamrock.com