25%+ of city budget to go to benefits: report
January 24, 2008
Catherine Lucey, Philadelphia Daily News
NOTE: THIS STORY HAS BEEN CORRECTED.
The costs of benefits for city workers will soon devour more than 25 percent of the city budget if the Nutter administration doesn't find ways to rein them in, according to a new study.
The report - released yesterday by the Pew Charitable Trusts and the Economy League of Greater Philadelphia - says that these ballooning costs could jeopardize the city's ability to pay for basic services.
The problem is worse in Philly than in the rest of the country, according to report co-author Katherine Barrett.
"It would be comforting to think Philadelphia is in the same boat as other cities, but it's not," she said. "It was in worse shape than all 50 states."
Barrett said that of the nine cities reviewed in the report, only one was in worse shape - Pittsburgh.
The basic findings are not new. The Pennsylvania Intergovernmental Cooperative Authority the city's fiscal watchdog, has put out its own reports on benefits.
But this does drive home the message that Mayor Nutter needs to find ways to bring down benefit costs in this year's contract negotiations with the city unions.
Some of the report's findings:
* Unchecked, by 2012 benefits will consume 28 percent of the city budget.
* Philadelphia has more retired workers drawing pensions than active workers contributing to them.
* Philadelphia city employees put less of their salaries - 1.85 percent from municipal employees and 5 percent from uniformed employees - into the pension fund than in other cities. Workers elsewhere contributed from 4 to 9 percent.
* Little information on how the pension fund is invested is available to the public.
* City health-care costs rose 80 percent from fiscal year 2002 to 2007.
* The city has no direct control over health-care funds, instead providing money to each labor union, which negotiates its own coverage plan.
* Three of the city's four unions do not require any monthly contribution for health care.
The report also included some ways to address the problem, such as:
_ requiring employees to contribute to their pensions or health care;
_ getting more city control over health plans; and _ exploring retirement benefits that include both defined-contribution and defined-benefit plans.
It also suggested looking at the Deferred Retirement Option Plan to make sure it is cost-effective.
Finance Director Rob Dubow, who had heard about, but not reviewed, the report, said that the findings were not surprising.
"I guess it's hard not to draw those conclusions," said Dubow, who studied the issues as the executive director of PICA.
Dubow said it was too early to talk specifics about what the city would push for in new contracts.
"We understand that this is a really big problem," he said. "We want to find solutions that are fair to unions and taxpayers."
A story in Thursday’s paper provided incomplete information about city workers’ contributions to the pension fund. The article reported that city workers put 1.85 percent of their salaries into the pension fund. It should have added that uniformed workers in Philadelphia set aside 5 percent of their salaries.