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| Callahan gets some financial tips from his younger constituents |
But it's a fair question. The casino host fee was heralded as the Holy Grail of municipal budgets, a cure that would eventually end tax increases and cure malaria, to boot. At that time, nobody was aware that the mother of all budget busters was on the horizon.
The looming municipal pension crisis.
Pennsylvania has over 3,200 local government pension plans, and in 66 of the Commonwealth's 67 counties, at least one municipality is having trouble keeping it funded. Over 1/3 of Pennsylvanians live in a municipality with a distressed pension.
In Easton, Mayor Sal Panto has been forced to impose a commuter tax that he hates himself, and admits that the revenue generated still won't be enough for his 69%-funded pension. In Allentown, a commuter tax was imposed two years ago. But Mayor Edwin Pawlowski still needs more money for the minimum annual payment (MMO) on his 64%-funded pension. So he's selling or leasing everything that isn't nailed down, including the City's water and sewer systems. In Easton and Allentown, the pensions are considered "moderately distressed."
Things are much worse in cities like Harrisburg and Scranton.
Unlike Allentown or Easton, Bethlehem has no authority under state law to impose a commuter tax. Its pension fund just isn't sick enough. It's funded at 78%, which makes it only "minimally distressed." But even if he could do so, Callahan told me last week that he has his doubts. "How am I going to get a new company to move here with a commuter tax?" he asked.
Still, making that annual minimal payment (MMO) is a drain on City finances. In 2004, when Callahan thought he could eventually cut taxes, that annual payment was just $1.5 million. By 2007, it had risen to $7.1 million. And next year, the City will have to come up with $11,129,609. That's a whopping 55.5% increase over the payment made just the year before.
How About That Casino Host Fee?
So let's just use the casino host fee. Problem solved, right? Wrong. The casino host fee, which could have been used to pay the salary of 95 police officers, will instead be gobbled up by pension costs.
In 2009, when the casino first became operational in Bethlehem for a few months, the City pulled in a $1.6 million host fee. That rose to $7.2 million in 2010, after a full year of operation. With the advent of table games in 2011, it shot up to $9.2 million. This year, the money pile is $9,375,000. As good as that is, it's not even enough to pay the $11.1 million needed for the pension.
Can't We Just Change the Pensions?
Another argument I often hear is that city officials in Allentown, Easton or Bethlehem should just wave their magic wands and change the pensions. It does not work that way. You can't mess with a defined benefit pension without violating the constitution, basic contract law and a host of labor laws. Most of these pensions, incidentally, were negotiated before any of the municipal officials we like to blame, including Callahan or Panto, were in office.
What can they do?
One thing Callahan has done in Bethlehem is change the pensions for new hires.
Under the current system, your basic municipal employee will get 70% of his "legacy" after 25 years of service. That includes his final base salary PLUS longevity PLUS differential PLUS overtime that year PLUS holiday pay PLUS Holidays worked last 12 months PLUS roster duty PLUS Sick Bonus PLUS Education Bonus.
That's a lot of PLUSes.
So an employee whose base pay is $68,133 will manage to retire at 70% of his total compensation with $61,754 per year for the rest of his life. Not bad.
Almost as good as the lottery.
But that same employee, under the new system negotiated by Callahan and public sector unions, might actually have to work another job. Instead of 70%, he'll only be getting 50% under the new formula. That's the highest cut Callahan could make under state law. And that same worker will walk away with base pay PLUS Longevity PLUS ... nothing else. That's it. So a worker with a base pay of $68,133 and 25 years of service will see a $36,317 annual pension instead of $61,754.
This is a major change in pensions, and it will help Bethlehem;s bottom line. But down the road, not now.
Can't the City Just Make Cuts?
The Lehigh County Commissioner approach to this problem would be to take out a budget axe and swing away and away, eliminating personnel..That also seems to be The Express Times approach. That newspaper pooh poohs every revenue enhancement proposal, even the no-brainers like an events tax or the PILOT, both of which are designed to lighten the load on the rest of us. But it fails to offer one responsible suggestion.
Cutting with a buzzsaw, suggested by the rocket scientists at a newspaper that is itself financially distressed, is irresponsible. Bethlehem, like Lehigh County, is already a lean machine. Over the last three years, Callahan has cut 69 positions, 10% of his workforce. He's down to 617 employees, which is "by far and away the smallest workforce" he can recall in his years as a Council member or Mayor.
In his proposed budget, he's eliminated anther five positions.
The Express Times financial wizards, who can't seem to keep their own paper in the black, think Callahan should cut even more. But he feels he's at the absolute minimum before city services begin to suffer. "I don't have less streets to plow," he tells me. And a recent citizen satisfaction survey tags the Mayor on that point. He is proud that "we still have one of the largest police forces in the state." Of the City's 617-person workforce, 141 of are police officers.
Perhaps the Express Times would like to see some police officers or firefighters laid off. From their perches, editors declaim, "Taxpayers deserve a look at what the city would have to do to live within its means, starting with no tax hike."
I can already tell you what the City would look like.
Allentown.
So you can see why it just might bother Bethlehem officials, who are already dealing with the largest brownfield in the country, to see a $1.1 billion-endowed university occupying 20% of the City's land mass without contributing so much as a dime.
The Express Times want us to feel sorry for Lehigh and the "real consequences" of being asked to pony up and pay for the frickin' 220 fire calls to which Bethlehem firefighters had to respond at that noble institution last year.
To say nothing of the cost of cleaning puke off uniforms.
But what about that terrible events tax? Why the single hauler proposal? Is the City still robbing Peter to pay Paul? I'll weigh in on each of these questions in the coming days.
In the meantime, if you can come up with responsible suggestions for $72 million in revenue, I'm all ears.
Sometimes, you just have to raise taxes. You can play games and deplete reserves like Jane Baker and Glenn Reibman did, and like John Stoffa is doing now, but you eventually end up with a 70% tax hike.
62 comments:
Of course very few city or county employees have an average salary of $68,000 over the span of 25 years. Nice little bit of smoke dancing O'Hare.
If someone works 25 years 'anywhere", public or private they should get a pension. Most people will average around $40-50,000 over the twenty five years and that is generous. So they end up with maybe $20,000 a year.
Frankly, that is not an evil thing. What is evil is the scam pulled on Americans convincing them that saving accounts designed forty years ago for high paid executives to hide money, was actually a pemnion,401K's.
A saving plan with no real defined payout is just that, and not a pension.
I have a pig, I glued wings to it and call it an eagle, aren't you impressed.
What I did was provide facts. You ought to try it some time.
I hope you boys wore protection during that lovefest.
Bernie -
This is a problem that needs to be addressed NOW. I'd like to see Callahan, Pawlowski and Panto start publicly advocating against the defined benefit plans that are strangling our cities.
Callahan's "improvements" might make the situation a little better in about 20 years, but that's too late. We also need to address when a person can begin to receive benefits, and what happens when the person dies.
The state has the power to make sweeping changes to the pension system. Our PA legislators - particularly Democrats who constantly block any effort at pension reform - should hear from their Democrat mayors throughout the Commonwealth. So should the residents.
Right now, all we're hearing is what tax needs to be imposed to pay for the problem. And PILOT's or other "solutions" won't be "lightening the load" (as you say) for anyone - nobody's taxes are going down.
By the way, a large part of the problem is also health care costs and many of the salaries being paid, the latter of which is certainly on the control of our Mayors.
Excellent article BO.
Perhaps we could have a pig roast for anon coward 2:43.
There is not a great deal that can be done with the general fund. It is lean. You can not cut millions and still provide basic services.
JC has done what he can with eliminating positions and reducing future pensions. And as you said he inherited the pension plan. I believe it was George Bush's fault.
What can be cut is the capital budget. There are things in that budget that do not belong in a capital budget when you have to take bonds out to pay for these items. The department heads know this, the comptroller knows this and council knows this. Council needs to grow a pair and cut deeply to protect itself and the citizens from future debt.
Once they have done that they need to define by ordinance exactly what can be permited in the capital budget. If possible a ceiling should be placed on the capital budget.
Lastly, I thank you for addressing the fact that the express times has no idea what it is talking about when it comes to municipal budgets.
Oh, one more thing. Anon coward 4:39, I understand how difficult it is for you to make any significant contribution to this discussion with your senseless head so far up your butt. One can only have pity for your petty little life.
Bernie,
School districts have far larger budgets and therefore bigger pension obligations than local government. The same spiraling pension costs are hitting them. To meet these obligations will require tax increases and budget cuts. This will negatively affect both the tax payers and the districts ability to provide a quality education.
Have to run.
Scott Armstrong
The country voted to sustain and increase government. The tax increase proposed by the Mayor is pittance compared to the Federal increase we are about to have. Nothing to see here. Time to move on. The Mayor is doing fine and doing what the people want.
Bo,
There are a couple of places in the general fund that money could be cut and that is fuel and vehicle maintenance..
Most department heads, bureau heads and others take their vehicles home at night.
Several live miles away in exotic places like bushkill and quakertown.
the current lie is that these people are on standby in case something happens. I guess a regular car won't get you back to town.
This sense of entitlement is costing the city 10s of thousands of dollars in fuel and extra maintenace each year.
What about additional insurance costs?
In my not so humble opinion only the Mayor should hace access to his vehicle 24/7.
Here is some food for thought.
Bernie, you did a good job bringinh these issues to light. You used a high salary so let's be more realistic. You go to work for the city when you are 18 or 19 years old. You work there for 25 years and now you are 43 or 44 years old. Your salary is not an unrealistic $40,000.00 per year. you retire at 70% of your annual salary which is $28,000.00 per year. You live to be 80 years old. You are collecting that retirement for the rest of your life and you live to be 80. You will have collected one million two hundred thirty six thousand dollars from that retirement (pension) fund. The County pensions are worse. Although Lehigh and Northampton County have stopped the practice of granting medical benefits, employees who are presently working, will still receive medical benefits totaling millions.
Except for medical benefits, Counties and cities have miniscule control over the way these Benefits are doles out because they are mandated by State law. The Legislature refuses to address the issue. They stick their head in their ass and completely ignore the biggest crisis issue facing local governments. Those are the cold hard facts and until the state does something about this issue, you will continue to see this burden grow just like the National deficit.
According to anon 7:29 just push the blame onto someone else. nice try asshole
Great reporting, O'Hare
Bernie, I am not the brightest light in the Marquee however (obviously) neither is some of our City officials. At my residence (Township resident), if I call an ambulance, my insurance company pays the bill. In some instances, the fire Company will bill the insurance company of the resident. There is no law that states the City "cannot" bill for services rendered. More than 200 calls for fire service to Lehigh University alone should make the University realize they ought to be paying their fair share. Property taxes are one thing. Taking advantage of my property taxes so you don't have to pay any is another. Bill the Colleges for services rendered.
It's Bush's Fault. You people voted this kind of politicians in office and now they don't like what they have to pay. Welcome to Democracy in action. Be careful what yo uask for, you just might get it.
let us not forget that the reason alot of these pension plans are in such bad shape now is because our friends on wall st almost bankrupted the nation and decimated my employee pensions including municipal pensions..before these big hikes in pensions could be approved usually an actuary studay is done to let them know whether the pension plan is solvent to handle the increses..Apparently most said they were and then came the big crash on Wall st..They are the villains here, not the workers..Again, all of these pensions were negotiated and approved by municipal leaders. So if they agreed, they share blame also..You are right about taxes..If there arent moderate tax increases now and then, eventually you will have to hike them by a ridiculous rate later on..Although you absolve Callahan of blame here , he should have raised taxes moderately the last few years, not just now..Stoffa should be raising them now also..Callahan also agreed to the idiotic deal that gave Lehigh County and Allentown a share of the casino funds that they dont deserve and eventually he and Stoffa were absent when Easton, who also didnt deserve casino funds, got what should have been the city and county's share of the table games money...So, in conclusion, there is alot of blame to go around for these shortfalls.
With the pending decision on table game expansion, it is time for an admendment to the legislation to spread the benefit fo municipalities that do not currently benefit. The money should be for emergency services. The Sands holds a monopoly on gaming ans now wants to compete with retail and entertainment. Otherwise, lets wliminate thw territorial exclusivity.
If I am not mistaken, Lehigh County used its share to fund the tax credit. That means Allentown and Bethlehem Lehigh County are double dippers, again. It wasn't too long ago Lehigh County provided Allentown 4 community police officer and Bethlehem 2. Share the benefit or eliminate the monopoly.
Typo..Wanted to say Wall bankrupted many employee pensions, not my employee pensions..Cant type and think at the same time..By the way, who the hell cares what the Express Times thinks?
How about a story on why the pension cost went from $1 million to $11 million? You make it sound like workers caused this and not mismanagement of the fund and the overall economic conditions.
7:29 - No one should retire with ANY benefit after just 25 years if you are just in your 40's, that's a joke. And I'm a public employee with a pension.
Oh but they do work. They get jobs with the County or another municupalities. I am fir good pay and decent retirement benefits but we can expect another family to burden that benefit. You cannot raise ther retirement age if the general public and not modify caddilac public pension.
Give up your Pension, Rep. Justin Simmons doesn't take a Pension.
You also don't need one.
"The state has the power to make sweeping changes to the pension system. Our PA legislators - particularly Democrats who constantly block any effort at pension reform - should hear from their Democrat mayors throughout the Commonwealth. So should the residents."
The state can't do a damn thing about pensions already in effect. Earlier this year, the LV's three Mayors were in Harrisburg, seeking pension reform.
Now you indicated that Democrats are blocking this reform. Since Rs are in control of both houses, I find that hard to believe.Please identify these members and the legisation they have blocked. I will email them to find out why.
I agree with the earlier comment that pensions were not really a big problem 15 years ago. Two things have happened: 1. Some municipalities such as Allentown have gone overboard establishing a base salary to include one time shots of overtime pay. That miscalculation will bankrupt any pension. Actuaries plan on salaries increasing within reasonable limits each year. When you increase base pay by overtime there is no offsetting contribution to provide for that cost. 2. Wall Street and the FED have clobbered pension returns. The latter has compressed bond rates which are the heart of pension investments. There is another factor that is complicating the problem: rate of return. In the 90's pensions used 8%. Because returns have declined rates of return have gone to 7 1/2 to 7 3/4 % which has upped the contributions significantly.
...other families should not be expected to sacrifice for bloated pensions. The 20 year retirement is appropriate for the military as it is a 24 - 7 sacrifice for the enlisted and their families.
Oh but they do work. They get jobs with the County or another municupalities. I am fir good pay and decent retirement benefits but we can expect another family to burden that benefit. You cannot raise ther retirement age if the general public and not modify caddilac public pension.
Here's where we part. Yes, other families DO support the compensation of public service employees - that's the point. The problem isn't even with the pensions themselves but the ability to retire at an unnecessarily young age.
The rate of return is a scary proposition. Many economists suggest that the rate should be set at your most secure investment's rate of return. In that case, the most secure is US treasuries with a rate less that 2% for thirty year bonds. In that case the pension funds are underfunded by a hundred times what is needed. As much as one wants to get away from defined benefit plans, they are needed to provide turnover in jobs such as police where younger are preferred over older. I know that everyone keeps saying to simply change defined benefit to contribution plans, but that will almost insure that employees such as police officers will work into their 70's.
"How about a story on why the pension cost went from $1 million to $11 million? You make it sound like workers caused this and not mismanagement of the fund and the overall economic conditions."
I could do that story, but it seems as though you know the answers. Blame 2600 municipal managers and call them incompetent. Blame those overall economic conditions. Keep all blame away from the public sector unions.
What us to say he wont collect if he is eligible? I do not believe Simmon will opt out.
" You used a high salary so let's be more realistic"
Actually, the salary I used is as realistic as it gets. That is the salary of a recent retiree.
1015. I agree with you. Sorry if I gave a diffwrwnt impression. Not very good w smart phone typing.
"There is no law that states the City "cannot" bill for services rendered. More than 200 calls for fire service to Lehigh University alone should make the University realize they ought to be paying their fair share. Property taxes are one thing. Taking advantage of my property taxes so you don't have to pay any is another. Bill the Colleges for services rendered."
Agreed. If they do not pay, sue under quantum meruit and cast light on the university's intransigence.
6:58, Wow Some good suggestions. Thank you.
"I thank you for addressing the fact that the express times has no idea what it is talking about when it comes to municipal budgets"
if there is anything the news industry has made abundantly clear, it's that it has no idea what it is talking about when it comes to any budgets at all. The ET, in particular, is in no position to dispense financial advice.
The Morning Call, in bankruptcy, has its columnist writing about twinkies today. And it wonders why it is bankrupt.
10:16, Good observation, and something I had not considered in my own ignorance. There is a public interest in encouraging police officers and fire fighters to retire before they are 70. For that reason, I can understand why police officers and firefighters should be able to retire at age 55. But not at age 40 or 45. But it makes sense that we'd want a police officer out of uniform before he reaches my age.
I certainly understand his decision and it is premature to promise that I will appeal it. Summary Disorderly is a hang-nail on a gorilla, and won't be a black eye in any stretch of the imagination. But one thing is for sure. If you are a tax addict, look out. Westeastonfootprint is staying put, will report the truth as it happens, and continue to seek public info on a regular basis.
She may even make a run for County Exec...imagine that?
If she does, she will bring down the entire GOP ticket with her.
The Republicans control every branch of Pa. Government so they cannot blame this on the Democrats..They haven't acted on anything of note..They still have done nothing about property tax reform and obviously very little to deal with this pension crisis..Still waiting for them to deliver on all of their promises..Tick tock, tick tock..
I could do that story, but it seems as though you know the answers. Blame 2600 municipal managers and call them incompetent. Blame those overall economic conditions. Keep all blame away from the public sector unions.
I am pension eligible and have never worked in a union or paid a single cent in union dues. But good talking point.
Municipal managers tend to underfund their portion of the pension in the name of not raising taxes. If managed correctly and with fiscal discipline, giant deficits could have been avoided. But they weren't. So now when cities spent their pension monies on filling potholes because they don't want to riase the ire of "cut taxes at all costs!" people like you, this is where we end up. The tax cutters blaming it on the lazy public sector employee (I won't lazily use the term "union" like you) instead of looking in the mirror.
Everyone wants something for nothing. They want cheap goods from Walmart and then bitch about jobs going to China. They want to slash the pay of public sector employees and then complain about the lack of response in a hurricane. It goes on and on. Avoiding responsibility.
The Republicans control every branch of Pa. Government so they cannot blame this on the Democrats..They haven't acted on anything of note..They still have done nothing about property tax reform and obviously very little to deal with this pension crisis..Still waiting for them to deliver on all of their promises..Tick tock, tick tock..
See Colorado and legalized marijuana. Hundreds of millions waiting to be had.
11:59, A fair criticism, but not the sole reason why pensions are underfunded. Over the years, we've had municipal managers who would avoid necessary tax increases by spending $ that should go into the pension. At the same time, we've had ridiculous pensions in which, in some instances the legacy is calculated on the last 30 days of pay. Those were negotiated by public sector unions and their Democratic puppets in government.
So yes, it is important to use the words "public sector union and not just "public sector" when discussing this issue.
Take a look at the few non-union municipalities out there and you will see I am right. Their pensions are not distressed.
The market is imposing the discipline that politicians and their constituents have failed to. We are in for hard lessons in the years ahead. Bills for debt spending are coming due. Sucks to be our kids and grand kids. We already spent their money. Hope we're all cared for before they wise up. The last election indicates they're still clueless, however. Just as well.
GET THE RICH TO PAY !!!!!
GET THE RICH TO PAY !!!!!
I gotta say Bernie.......this is one of the best debates yet. Not to mention the great ideas that are coming forth. "Bill for Services rendered". That person just might have started the ball rolling in this area. You have some great readers and contributors on your blog, However, you should not have let that one comment calling another very informational comment an "ASSHOLE". That is one good way for someone to stop contributing.
P.S. I am not the original contributor. The idiot calling someone an asshole contributed nothing.
Bernie:
Good article.
If I may add a suggestion...you should examine the future demographics.
The baby boomer generation is huge and will soon be a huge demographic of retirees all being funded out of pensions already in trouble.
The populations following the baby boomers are much, much smaller.
So what you'll have is this huge retirement class on fixed incomes fighting any sort of tax increases being funded out of programs funded by much smaller workforces.
I think it's "the" perfect catastrophe. Everything that's being done now is merely staving off an inevitable bankruptcy for many municipalities.
Bernie,
I would like to know your take on something.
We see time and time again these Police Union Employees put their time in and retire. Maxing out all the +'s you spoke about so they can get the max monthly pension. My question to you is do you think it is fair that the system then allows them to take another Police Job and basically double dip? Not only are they taking jobs away from young families that are trying to get going but they are draining more and more resources from the Tax payers and pensions.
This is funny!
-Clem
2:00, I'll tell you that there is a police officer shortgae. I am not sure these guys are taking anything from younger families. I also think that a PO on a pension is not as likely to complain about pay somewhere else. I know some of these guys, and certainly think highly of most of them. But I do think there is an inherent unfairness in the way things are going., i don't blame the cops. I blame the pension agreements that make this possible./
1:512, Scary observation, but you are right.
12:40, I agree that the use of foul language detracts from the debate. I'm guilty myself at times.
Dear 1159,
You are right on..Well said!! If they had been managed right we wouldnt be in the fix we are in..Time to stop blaming the unions..There is alot of blame to go around..Same thing with the swaptions..
Sure would be interesting to see the total number of active/retired cops some municipalities are funding. I suspect the trend would reveal the number of active duty cops is somewhat static and the number on retirement continues to grow.
I wonder how many cops Allentown would have on the streets if the minimum retirement age was 55?
There is no shortage of police applicants. There is a shortage of revenue to make additional hires.
Seems ironic that a person collecting a lifetime public pension with full medical benefits could be a teaparty advocate.
One thing to know about police officers is that many of them do not participate in social security. I believe that they are required to now participate in medicate. If that issue were corrected alot of what is required for pensions could be reduced.
Most of the teabaggers are white, male and over 65. Crybaby boomers who are angry they made poor life choices and now begrudge others who planneed for their future.
The Limnaugh generation, White, mad and old.
Most of the baggers collect medicare, social security and disabiltiy. I know some retired teachers and municipal officials who are teabaggares, they clain the pension people today are somehopw "different" then they are. Or they "almost" feel bad about collecting pensions and getting benefits but they still cash the check.
Hypocrisy born of anger and frustration.
one of the reasons for the teaparty advocacy among pension recipients is the declining value of the dollar. Most municipal pensions are fixed with no cost of living increases. If our government continues to borrow madly it reduces pension value quickly. In effect, a 5o% pension is only worth 25% after seven years.
Tell CORBETT to give-up at least one PENSION.
1. School District
2. County
3. Federal
4. State
5. Social Security..Great work if you can get it!
And this helps Bethlehem's budget how?
"Most of the teabaggers are white, male and over 65. Crybaby boomers who are angry they made poor life choices and now begrudge others who planneed for their future.
The Limnaugh generation, White, mad and old.
Most of the baggers collect medicare, social security and disabiltiy. I know some retired teachers and municipal officials who are teabaggares, they clain the pension people today are somehopw "different" then they are. Or they "almost" feel bad about collecting pensions and getting benefits but they still cash the check.
Hypocrisy born of anger and frustration."
Thanks for a comment that fails to make one meaningful suggestion. Instead of being a partisan asshole, try coming up with an idea.
Troughfeeders and, sorry to be so blunt, but, the dumbest dumbasses I've read in quite some time.
Corrupt politicians grant themselves and their oinker brethren unsustainable benefits while dumb dumbasses who can't even read their check stubs go economically and intellectually AWOL.
"Well, if they only would have funded the theft and managed it correctly, all would be well..."
Talk about rearranging the deck chairs on the Titanic!
Market forces never, ever dictated filling the trough to overflow or, more accurately promising to do so and throwing a bunch of meaningless IOUs in instead of actual slop. Just bad law by really horrible human beings, of both parties. Selfish abusers of their power and public trust. From the pols to the judges to the donut eaters who enforce, they are gonna take and take and take, and there's nothing any "suggestion" is going to do to stop them.
My hope is that I am around long enough to meet up a with few of the trough troughfeeders' children when the bill comes due, so I can laugh in their face say, "Mommy and daddy didn't give a shit about you. They just wanted theirs and left you the bill. Now, pony up!"
-Clem
Bernie,
Your questioning one Pension for a municipal worker, I'm indicating what a Politician may have gained for himself on the back of the Taxpayer! (Corbett) and he's not the only one!
Bernie, this was very well written. Good job.
Clem - Just be thankful that the trough feeders supplied you with roads and infrastructure, security, and a tenth grade education to work with your fellow educated coworkers at McDonalds. You didn't build that.
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