Pittsburgh Council Passes Tax Plan to Fund Pension, Avoid State Takeover

Pittsburgh’s City Council voted 7-2 for a plan to dedicate $13 million a year in parking taxes to its pension fund to avoid a state takeover that threatens to double the city’s payments into the system by 2015.

Mayor Luke Ravenstahl said he opposes the council’s plan because he believes it won’t head off a takeover and will open a $13 million hole in future city budgets.

Ravenstahl, 30, told the council’s finance committee he will veto the plan today, to give the legislative body time to override him before a Dec. 31 state deadline for raising at least $200 million in assets needed to cover a minimum of half the fund’s needs and avoid a takeover. The council plans to meet again tomorrow.

“I think we’re creating a bigger problem in the future,” Ravenstahl said. “I will not be an active supporter to participate in something I think doesn’t work and doesn’t solve the problem.”

Officials in Pennsylvania’s second-largest city have been trying to devise a plan to shore up a pension fund for two years. The plan has about $325 million in assets to cover $1 billion in promised benefits, according to a consultant’s report. Under Pennsylvania law, the state must begin taking control of the retirement system if the city’s obligations are less than 50 percent funded by year-end.

Photographer: Jemal Countess/Getty Images for Time Inc

Pittsburgh Mayor Luke Ravenstahl. Close

Pittsburgh Mayor Luke Ravenstahl.

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Photographer: Jemal Countess/Getty Images for Time Inc

Pittsburgh Mayor Luke Ravenstahl.

‘Financial Armageddon’

The municipality of 334,563, whose pension problem was called a “financial Armageddon” by two councilors yesterday, joins cities such as Chicago and states such as Illinois and New Jersey that may cut services or raise taxes to meet ballooning retirement costs. Those states and 18 others skipped payments or underfunded their pension systems from 2007 to 2009, according to an October report from Loop Capital Markets in Chicago.

If assets haven’t been added to Pittsburgh’s pension fund by Dec. 31, the state’s Municipal Retirement System will begin the process of taking it over. The procedure won’t conclude until September at the earliest, according to James McAneny, the Pennsylvania official charged with determining whether the city has met the minimum funding threshold.

Pennsylvania may order the city to double its $46 million annual contribution by 2015 and to raise it to as much as $160 million by 2030, according to a report prepared for the state.

Earlier Plan Dropped

The council dropped a proposal passed in committee 90 minutes earlier to use proceeds of a $52-a-year tax on Pittsburgh workers for pensions after McAneny said restrictions on the use of the commuter tax made it ineligible as a source of pension funds. The parking-tax plan was passed as a substitute.

“We have to stop making things up on the fly with no research,” said Ricky Burgess, a council member who voted against the plan.

The city parking tax assesses a 37.5 percent levy on charges for using garages or paid parking lots. The parking tax is projected to raise $47 million in 2011, according to Ravenstahl’s budget.

Pittsburgh’s pension system includes three retirement plans for about 7,000 active and retired firefighters and government workers. The accounts have only enough funds to pay benefits for three to four years, Ravenstahl said.

“I don’t think anyone knows what the impact of this will be,” the mayor said. “All we know is it’s going to be bad.”

Cooperation Required

Two months earlier, the council rejected Ravenstahl’s plan to raise $452 million through a long-term lease of parking facilities to a group led by JPMorgan Chase & Co. in New York.

The council demanded Ravenstahl’s appearance today after Scott Kunka, his finance director, opposed another plan based on parking revenue. That proposal, from Council President Darlene Harris, was designed to put $880 million from fees paid to public parking garages into the pension fund over 30 years.

Harris’s proposal wasn’t feasible because municipal parking authority revenue is dedicated to repaying debt under covenants with bondholders, Kunka said yesterday.

“This plan does not work unless there’s cooperation,” Doug Shields, a council member, said yesterday. “What is really very clear to me is these people got their marching orders to sabotage this plan.”

Moody’s Investors Service changed its outlook for the city’s A1 rated general-obligation bonds to negative on Nov. 23, citing a potential rise in pension costs under state control.

To contact the reporter on this story: Dunstan McNichol in Trenton, New Jersey, at dmcnichol@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.

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