$1.1M pen­sion hike looms

Un­dereper­form­ing high-cost in­vest­ments, longeve­ity com­bine to cre­ate bud­get crunch

The Community Connection - - FRONT PAGE - By Evan Brandt ebrandt@21st-cen­tu­ry­media.com @PottstownNews on Twit­ter

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

the ba­sics.

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.

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