$1.1M pension hike looms
Undereperforming high-cost investments, longeveity combine to create budget crunch
POTTSTOWN » Already struggling to find ways to avoid a second consecutive tax hike, borough council discovered Sept. 5 that the problem just got at least $1.1 million harder.
Borough Manager Justin Keller informed council that due to longer lives and an expensive investment consultant Pottstown’s “minimum municipal obligation” to keep the police and non-uniform pension funds solvent will be $2.4 million in 2019.
Keller said the rising pension costs for the coming year have two major causes.
“People are living longer and the actuaries need to account for longer pension pay-outs,” he said.
The second reason, he said was a lower-than-expected return on investments and a higher-thanexpected set of fees from the pension funds’ financial adviser. A new adviser has already been hired which allowed the fund to “cut our fees in half,” Keller said.
But the damage is done and the money must be paid out of the 2019 budget, although some help may come from the state.
This year, Keller said, the state provided about $700,000 in state aid to help cover pension costs.
Although the staff won’t find out how much aid the state is providing in the coming year until next month, Keller said he would expect at least as much, meaning the amount the borough has to come up with is $1.1 million.
That won’t be easy considering that in February, the ad hoc committee put together to try to find ways to lower taxes discovered that instead, without an infusion of $1 million in reserves to re-establish contributions to a capital fund, the borough’s bond rating may be downgraded.
In prior years, the general fund’s dwindling reserves were drained to plug deficits allowing borough council to adopt budgets with little or no tax increases. The single largest cost in the general fund is the police department.
Police pension costs
According to the current 80page police contract, officers can retire at age 50 with at least 25 years of service and receive 50 percent of their final average salary in the last 36 months of employment with another $100 per
month added for every additional two years of service.
Members contribute 5 percent of compensation to the plan.
Base salaries for this, the second year of the threeyear contract, range from a low of $59,155 for a patrol officer to $92,227 for sergeant. the police captain and police chief have their own contracts.
Base police salary ranges in 2019 will range from $61,235 to $95,472.
Night work after 8 p.m. adds 2.5 percent to the base salary.
Longevity pay adds 2 percent to base pay after five years of service, all the way up to 6 percent after 20 years of service.
The pension bonus for longevity is in addition to any cost-of-living-adjustment but cannot exceed 100 percent of salary before retiring. The cost of living adjustment depends on which contract was in force when the officer retired. For example, those who retired after 1995, a cost of living adjustment based on the Philadelphia region’s Consumer Price Index is capped at 7.5 percent increase of final compensation, but for those who retired after 1997, that cap is 15 percent.
Officers are vested in the pension after 12 years of service
Non-uniform pension costs
The current 43-page contract with the Pottstown chapter of the American Federation of State County and Municipal Employees does not contain specifics about pension benefits for non-uniform pensions except to say that it remains unchanged from the previous contract.
However, a 2015 audit of the plan posted on the borough’s web site spelled out
Non-uniform employees contribute 5.75 percent of compensation to the plan. They are vested after 10 years.
And like the police, the defined benefit pension provides 50 percent of the average salary calculated from the last 36 months of employment upon retirement, which can occur at age 55 after 25 years of service.
Current salaries range from a low of $18.98 per hour ($39,478 annual) to a high of $27.30 per hour ($56,784 annual).
Health care for retirees
Health care payments to retirees also present a significant challenge to the borough’s budget.
Five years ago, the borough began setting aside money to pay for another liability for retirees — health care. While a $1 million pension liability might seem intimidating, the borough faced a $27 million liability on 2013, when it began making an annual $250,000 contribution to try to address that liability.
Since then, the borough has paid into that fund four of the five past years, skipping 2017, according to Finance Director Janice Lee. With the 2018 payment, that fund will have $1,250,000 according to Lee.
That health care liability was one of the issues mentioned in the 141-page Early Intervention Program report issued by Management Partners in 2008 as one of the things necessary to straighten out borough finances.
The report was cited as the reason for the lay-off of 13 employees in late 2008 and the 10 percent property tax hike which accompanied it.
New EIP report
A new EIP report will get underway as early as October. Borough council was slated to vote Sept. 10 to accept the administration’s recommendation to
hire Econsult, one of three firms that applied for the work after the borough was approached by the Pennsylvania Department of Community and Economic Development and asked if it once again needs help organizing its finances.
Econsult was the name of the firm hired in 2007 by the Pottstown School Board and recommended the “consolidated campus” (“megacampus” to its detractors) plan which was rejected by voters later that year.
Econsult will be paid $64,925 for a new set of recommendations to tighten up borough operations and finances that could be issued by March, Keller told council.