Thursday, December 16, 2010

Sixth Essay: Ten To Tee Up The “T”: A Balanced Diet Of Revenue Nutrients: Part I.

The following reforms and revenue options are needed to stabilize core communities' property taxes, which have become barriers to reinvestment and job creation, while giving cities the revenues they need to provide essential services and quality infrastructures and improve bond ratings. 

The following two measures have the added advantage of working to equitably stabilize local property taxes while not increasing a citizen’s net tax burden in any form.

(6) Comprehensive state reform of local pensions and reform of arbitration process.  People and our public safety retirees are living longer.  According to the Center for Disease Control, the average American lifespan is 77.9 years.  God bless us all; that’s a good thing.  Note also that pension reform cannot legally change public employees’ pension benefits retroactively.  That’s the good news.

Yet, Pennsylvania has over 3,000 separate local government pension plans, which, ludicrously, is 25% of all such plans in the nation.  Two-thirds of the plans have ten or fewer active members.  This is sheer madness.  In New Mexico, as urban expert David Rusk points out, all state and local government employees belong to one state-run pension system (PERA), and all school district and state university employees belong to another (ERA).  Once again, the Commonwealth of Complication confounds commonsense.

Further, during flush times in the 1990s, cities like York did not adequately pay into their pension funds until the state required them to do so in recent years, meaning that the days of reckoning are at hand.

Ever upward arcing city pension costs are now devastating cities’ general funds.  Over many years of tough collective bargaining negotiations, despite the recent brutal recession and market downturns, it has become more and more usual for city’s public safety employees who retire after twenty years of service to receive full pensions, equal to 50% of the average salary during one’s last three years of employment, and full health care for the rest of their lives. If an individual retires at age 40 and then lives to the age of 80, the math speaks for itself. 

Between pensions and health care payments, it is likely that a retiree actually will receive more dollars from a city as a retiree than he or she did as a full-time employee. 

Cities pay for 100% of these costs.

“MMO” or Minimal Municipal Obligation is the state mandated annual payment that a local government must annually pay into its pension fund against future obligations. The 2001 MMO for the City of York’s workforce was $546,042, but by 2009, the MMO was a staggering $5,203,433 – an 853% increase over just eight years.   Its MMO for 2011 is $6,575,288.  That's an eye-popping 1,104% increase in just ten years. (City Of York 2011 Budget Introduction)

Our public safety employees are trained professionals who put their lives for the citizens who they serve, and they deserve reasonable pensions and health care coverage after retirement.   However, given the cities' stagnant tax revenues, concentrated poverty and blight, sluggish property values, and increasing number and value of tax exempt properties, coupled with longer retiree lifespans, the pension system is unsustainable, and something has to give. 

In order for our cities not to drown in rising pension costs going forward, we first need comprehensive state reform to mandate consolidation within some of the 3,000 local government plans.  This will enable participating municipalities to have competitive leverage with insurance companies when negotiating pension and health care deals, realize volume savings via consolidation, and eliminate duplicative administrative costs.

Consolidation also will provide more clarity of and consistency between pension plans throughout the state, so municipalities are not cannibalizing each other’s talent by offering different plans.  Further, it should lead to more portability between municipalities so, if Pittsburgh and any other participating cities, for example, lay off 50 police officers or firefighters, these veterans can take jobs in third class cities without losing their prior years of service for vesting and without leaving the state.

Second, we need to seriously explore switching from requiring cities to provide defined benefit plans to enable them to offer voluntary benefit or 401(k) or 403(b)-style plans, increase normal retirement age triggers for benefits to be paid (e.g., pensions and retiree health care not paid until age 55) or otherwise curtail early retirement subsidies.  For example, in December of 2010, the Illinois legislature passed a measure to increase the retirement age to 55 for newly hired police and fire fighters to receive full benefits.

Capping individual retiree health care costs per year and changing Act 111 arbitration rules so arbitrators must take into account cities’ financial predicaments before making decisions must also be on the table.

Although the state recently made good faith efforts to reform the pension issue as it relates to state public employees, public teachers, and state elected officials, the reform did not, in any way, affect the pension crisis confronting core communities.  Tough to defuse and with passionate people surrounding it, it’s a time bomb ready to explode in the faces of our cities’ taxpayers.  

(7) 50-50 earned income tax reform.  This would not increase anyone’s tax bill and would not be a new tax.  It would be a 50-50% split between the municipality in which one works for the majority of the year and the municipality in which one resides for the majority of the year.

Currently, because of a rigid state law that local municipalities cannot change, 100% is paid to where one resides, typically the suburbs, yet core communities are responsible for infrastructure, public safety, and other services commensurate with work-day swells in their populations. In other words, although York’s population increases by 78% each work day, none of its commuters’ earned income tax is paid to the city to help pay for public services.

Based on 2009 dollars, non city residents earned $1,091,765,814 – that’s right, over $1 billion -- working in the City of York while city residents who worked in the city earned only $143,454,935.  A fair 50-50 split in earned income tax revenues between where one works and where one resides would generate over $850,000 for the city each year.

Based on 2011 cost projections for the City of York, $850,000 would pay for the entire Office of Business Administration and come close to paying for the entire Parking Bureau or the entire Department of Community Development.  It also would be twice the cost of the city’s Human Resources Department.  Looked at yet another way, the infusion would pay for both the City Economic Development Department and Human Relations Commission in their entireties.

Currently, such a bill has not even been introduced for discussion in the legislature.

While providing equitable relief to our battered core communities and alleviating property tax burdens, these two proposals – comprehensive local pension reform and 50-50 earned income tax reform, would not create a new tax or increase an individual’s net tax burden.

An urban development, strategic planning, and public relations consultant, Matthew Jackson is the author of The Crisis: A Plea From York Town To Save Our Cities And Towns

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