Busted

Find your spine, City Council.

by Jeffrey C. Billman

Let's review what we know: The city's pension system is busted. According to a dire report issued this week by Northwestern University's Kellogg School of Management, the pension fund has $9.7 billion in unfunded liabilities — that's $16,690 per household — and will become insolvent in 2015, fewer than five years from now. In fact, of all the cities and counties in the country struggling with pension problems — and there are a bunch — Philadelphia "has the most immediate cause for concern," says associate finance professor Joshua Rauh in a press release. That $9.7 billion is more than twice the city's annual budget, and more than twice the $4 billion the pension fund has in assets. Taxpayers are already shelling out about a half-billion bucks a year, but the city still can't meet its burden; this year, the city deferred $155 million of its obligations, and it plans to defer $80 million next year. That is, in effect, a loan we'll start paying off in 2014, at an interest rate of 8.25 percent. And it gets worse: Last year, the city lost $1.2 billion in the stock market — this, when the market was generally up — despite paying tens of millions of dollars to hundreds of money managers.

All of that is backdrop for City Council's ongoing "debate" (read: foot-dragging) over Mayor Michael Nutter's proposed repeal of the Deferred Retirement Option Plan (DROP), a debate City Paper contributor Ralph Cipriano reinvigorated this spring [Cover Story, "The Billion Dollar Boondoggle," April 22, 2010].

To be sure, DROP is but a small (though not insignificant) piece of the city's pension woes: A recent Boston College study pegged its price tag at $258 million over the past decade; an analysis for this newspaper by Philadelphia-area actuary Joe Boyle, utilizing the city's own financial records, put it above $1 billion. Either way, it's still a huge money-suck that hasn't produced the promised benefits. The Boston College study concludes that "at no plausible combinations" is DROP cost-neutral, and it has, on average, only kept city workers on the job for another 1.25 years. In other words, this thing failed.

And yet, City Council, contemptibly beholden to the municipal unions, is doing everything imaginable to gum the works. First, Council demanded yet another study (and paid for it with your money, of course), because the first one didn't deliver the answer they wanted. Then, City Solicitor Shelley Smith opined last week that while she believes the city is legally able to revoke DROP for future employees -- this wasn't a collectively bargained benefit, and the law explicitly gives Council the right to amend DROP as it sees fit -- the unions would probably sue anyway, and she couldn't predict the outcome. Council President Anna Verna — herself a DROP enrollee who will bank $584,777 in January 2012 — pilloried Smith for allowing any ambiguity into her legal opinion. Again, more research is needed.

And really, what's the rush?

The truth is, if Council wanted this thing gone, it would be gone. But instead, it looks for any excuse to not do what is unequivocally necessary. That it has allowed itself to be bullied by the avaristic unions, even when the city's pension system is in utter collapse, shows how busted our local politics has become.

Enough foot-dragging. Find your spine, Council.

Don't worry kids, Isaiah Thompson will be back in this space whenever he gets back from vacation. Meanwhile, you can e-mail your favorite Soapboxer at jeffrey.billman@citypaper.net.