In a city beset by borrowing and tax hikes, Scranton's woefully underfunded employee pension fund has been described by one resident as the "gorilla in the closet."
However, the city's proposed budget for 2013 begins to address the pension problem by more than doubling the city's mandatory minimum obligation to its pension fund.
The city will contribute in 2013 a total of $9.5 million to its three employee pension funds (police, fire and nonuniform), which would be an increase of $5.1 million over the $4.4 million contributed this year, said council finance chairman Frank Joyce.
The minimum contribution "must be adhered to in order to keep our very underfunded pensions stable," Mr. Joyce said.
Still, because Scranton ranks among the most-severely distressed pension funds in Pennsylvania, the city has a long way to go.
A recent report by the state Department of the Auditor General showed Scranton's pension fund as of June 30, 2011, had $173 million in liabilities, but only $60 million in assets, for a fund ratio of 34 percent, among the lowest in the state.
In comparison, Hazleton had a 49 percent fund ratio; Wilkes-Barre, 73 percent; Pittston, 74 percent; Carbondale, 89 percent; and Dunmore, 56 percent.
"It's not only us," said Scranton's Business Administrator Ryan McGowan about the underfunded pensions. "That's everywhere. That's an obligation that has to be met."
Pennsylvania has more than 3,200 local government pension plans, or around 25 percent of all municipal plans in the nation, according to the state auditor general's office, which audits 2,600 of those plans. The other 600 are county or other municipal plans outside of the agency's jurisdiction.
The 2,600 pension plans hold $10.2 billion in assets, but have $17.4 billion in liabilities, for an aggregate funding ratio of 58 percent, according to a recent special report by Auditor General Jack Wagner.
That report, which covered July 1, 2009, to June 30, 2011, showed 36 percent of pension plans are considered distressed, and 2 percent, or 52 municipalities, are classified as severely distressed with less than 50 percent of their plan liabilities covered.
Distressed status is determined through a funding ratio that examines the total obligation a public agency owes its employees and how much money that agency's pension fund has on hand. Any funding ratio under 50 percent is deemed severely distressed.
Consolidation options
Mr. Wagner proposed consolidating the 2,600 pension plans into a statewide system that he believes would yield higher rates of returns on investments, reduce administrative expenses and lessen the need for increased contributions from taxpayers. Around two-thirds of the 2,600 pension funds have 10 or fewer members, the report states.
"Pennsylvania has too many small and underfunded municipal pension plans that could cost taxpayers millions of dollars to maintain," Mr. Wagner stated. "Consolidation is the best way to preserve benefits for retirees and future retirees while protecting taxpayers from higher tax bills they can't afford."
The report found that:
-â52 plans are severely distressed, with fund ratios below 50 percent, and have combined assets of $760 million and liabilities of $1.69 billion, for an average fund ratio of 45 percent.
-â234 plans are moderately distressed, with fund ratios from 50 through 69 percent, and have combined assets of $5.6 billion and liabilities of $10.6 billion, for an average fund ratio of 53 percent.
-â663 plans are minimally distressed, with fund ratios from 70 through 89 percent, and have combined assets of $3 billion and liabilities of $3.9 billion, for an average fund ratio of 79 percent.
Cities like Scranton, with aging infrastructure that have seen populations and tax bases dwindle as pension costs have soared, will find it more difficult to recover unless changes or reforms are made, officials said.
Scranton's three pension funds were delineated in the state report as follows:
-âFirefighter: 137 active members; $86.6 million in liabilities, $24.7 million in assets; fund ratio of 29 percent.
-âNonuniform: 169 members; $12.2 million in liabilities; $3.2 million in assets; fund ratio of 26 percent.
-âPolice: 150 members; $74.5 million in liabilities; $31.8 million in assets; fund ratio of 43 percent.
-âCombined total: 456 members; $173.3 million in liabilities; $59.7 million in assets; fund ratio of 34 percent.
The underfunded-pension issue was an undercurrent during the city's battle this year over revising its Act 47 recovery plan.
In May, financial advisers told the city's Composite Pension Board that represents the police, fire and nonuniform pension plans that those funds' assets have not fully recovered from the stock market crash of 2008 and similar stock market plunge could wipe out much of their assets.
The advisers told the composite board that assets of $77.1 million at the end of 2006 had collapsed to $47.5 million by Jan. 1, 2012, due to the 2008 stock market collapse and slow recovery. Raises in pension payouts and decreases in staff and pension contributions also have meant less funds going in and more going out. Between Dec. 31, 2006, and April 30, 2012, $22.9 million was contributed to the pension funds, but $55.3 million was disbursed. Minimum contributions comply with law, but are falling far short of coming anywhere close to fully funding the pension plans, the advisers had said.
The gorilla
In June, when city officials were at loggerheads over how high taxes should be raised in a revised recovery plan, city resident Lee Morgan, speaking at a council meeting, described the city's underfunded pensions as "the gorilla in the closet."
According to Mr. Joyce, Scranton's MMO contributions will rise as follows: firefighter, from $1.8 million this year to $4.6 million next year; police, from $1.5 million to $3.6 million; and nonuniform will rise slightly to around $300,000.
Combined, the MMO increase is $5.1 million, Mr. Joyce said, which even though it's a minimum contribution is no small increase for the strapped city.
Mr. McGowan said of the increased contribution, "It allows us to manage where we need to go and move forward."
Meanwhile in Lackawanna County, Dunmore and Roaring Brook Twp. have the next-lowest fund ratios, each of 56 percent, which designated them as "moderately distressed."
Dunmore, which has full-time police and fire departments, had $7.3 million in assets and nearly $13 million in liabilities in 2011. Dunmore Councilmen Mike McHale, a certified public accountant, said the council has focused on financial issues, including retiree pensions, that it inherited from the previous council. While Mr. McHale and other council members aren't ready to share a solution to the borough's pension problem, they said it will become public at one of the remaining meetings this year.
"We already have a solution in the works that we're in the process of addressing," Mr. McHale said.
Roaring Brook's pension fund covers a single full-time employee and one retiree. The township had $341,097 in pension assets and $612,520 in liabilities in 2011, and for a year now has increased pension contributions through quarterly payments, said Supervisor Board President Tony Jordan.
"We have a plan to remedy the situation," Mr. Jordan said.
ROBBIE WARD, staff writer, contributed to this report.
Contact the writer: jlockwood@timesshamrock.com