MORE THAN ANY mayor before him, Nutter has labored to get a grip on the city’s pension disaster. Too bad he has so little to show for it.
For nearly two years, the Nutter administration has tried but failed to get rid of DROP, the perk that pays sizeable lump-sum payments to retiring employees, on top of their annual pension payments, at a cost to the pension fund of somewhere between $9 million and $22 million a year.
For four years, Nutter has tried but failed to negotiate contracts with the city’s blue- and white-collar unions—AFSCME District Councils 33 and 47—that would set the city on a path toward a sane pension system. The one deal he did sign with those unions, a 12-month accord at the beginning of his first term, accomplished nothing on pensions. In retrospect, given Nutter’s enormous popularity his first year in office and seeming political leverage at the time, that looms as a critical mistake. Ever since, DC 33 and DC 47 employees have worked without contracts, under the terms of their old deals.
And for four months, Nutter tried but failed to put together a pension bond offering so vast that it made Rendell’s risky bid look like Little League. That setback turned out to be a propitious one: If the Nutter administration had gotten the bond deal together, the 2008 stock market collapse would have had a truly catastrophic effect on the city’s finances.
Yet for all the shortcomings, pension hawks say Nutter has done better by the pension system than his predecessors. The city’s pension board, comprised of administration and union appointees plus the City Controller, has cleaned house internally, severing questionable deals with politically connected investment advisers and lowering the presumed rate of return on its investments (a prudent measure that makes it less likely the fund will fall short of its investment goals). Nutter—with the firm hand of the state legislature stiffening his spine—managed to get through the 2008-’09 economic crisis without stiffing the pension fund too badly. (The city did defer pension payments for two years, but has been paying back those skipped payments, with interest.) And the Mayor has lightened the pension fund’s long-term load somewhat by keeping the city’s workforce lean: There are 2,500 fewer pension-eligible workers on the city payroll now than in 2008.
What Nutter is most proud of, though, are contracts with the city’s fire and police unions. Those contracts, reached through arbitration in 2009 and 2010, included a one-point bump in the retirement contributions of all future cops and fire personnel (from five percent to six percent of each paycheck), and a new hybrid retirement plan—part pension, part 401(k) equivalent—that will apply only to fresh recruits. “We’re the only city in the United States of America that has a hybrid pension plan for uniformed police officers. And we have the same for firefighters,” Nutter recently boasted to reporters in City Hall, shortly after presenting his budget address to an audience packed with hostile union members in February.
That’s not quite true, actually; Atlanta also has a hybrid plan. But even if it were, Nutter tends to leave out a critical fact: The hybrid plan is optional, not mandatory. And to date, not a single new cop or firefighter has enrolled in it. Not one. “Just because no one is participating yet doesn’t mean no one will in the future,” says Nutter’s finance director, Rob Dubow. But that may be wishful thinking, given that union bosses are actively discouraging new hires from signing on.
In March, though, Nutter scored a real victory, albeit over a very small union: the 2,000-member Local 159, which represents corrections personnel. Unlike the arbitrated police and fire contracts, this deal creates a mandatory hybrid pension plan for new corrections workers. If Nutter successfully makes that deal the blueprint for future contracts with bigger unions, he will have achieved something significant, something that would put Philadelphia on better financial footing for decades to come.
But that’s a big “if.” Given the absence of major pension concessions from the larger unions, Councilman Green says, the past four years have been about “kicking the can down the road,” and enacting pension reforms that sound good but don’t achieve much. The next mayoral race, Green predicts, will turn on one question: “Are we actually going to address our real problems? Are people going to vote for somebody who tells them what has to happen to fix the situation?”
Green’s resolute rhetoric is inspiring, which makes it all the more disappointing that he himself has chickened out when presented with opportunities to make even modest reforms to the pension system. Instead of embracing Nutter’s bid last year to terminate DROP, Green sided with the Council majority that opted to preserve the program (which is beloved by the unions) while tweaking it around the edges. And when Nutter asked Council to approve an ordinance that would have increased pension contributions and created a hybrid plan for the city’s non-union workforce, Green again declined to support the Mayor. Here was a pension reform the city could have enacted on its own; union consent wasn’t necessary. And Council, including Green, balked. “It’s meaningless,” says Green, when pressed on his votes. “I want us to focus on steak, and not claim victories that are sizzle.” As though it would have been simply “sizzle” for the city to lead by example and create a sane pension system for non-union workers.
The point isn’t to harp on Green’s pension hypocrisy, but rather to highlight the fact that even politicians who plainly understand the stakes are prone to wilting on pensions. Indeed, in terms both of policy and perception, City Council—in partnership with the rest of the city’s political elite—has done massive damage to the fund’s stability and overall public support for public-employee pensions.
In recent years, a glut of Council members and other high-level city officials have retired and collected DROP payouts on top of lifetime pension benefits that are astronomically large in a city where the median household income is just $36,251. Mayor Street will get $116,387 a year for life, on top of the $451,626 DROP windfall he collected the day he retired. Recently retired Council president Anna Verna now receives $130,707 a year, in addition to her jaw-dropping $567,000 DROP bonus.
The massive payouts are due in part to the fact that elected officials are paid a lot more than an average trash hauler. But back in 1987, when they were paring back pension benefits for union workers, the city’s elected leaders also created a special, particularly generous pension class just for themselves.
It has been revealing over the past few years to watch City Council debate the fate of DROP. On its own, the program is no mortal threat to the pension fund. But DROP—which was never intended for politicians—was so badly abused by Council members and other elites that it became the symbol of the political class’s sense of entitlement.
Even so—even with public pique maxed out—Council sided with the unions, voting 14-3 to preserve the program, modifying it only slightly. Nutter vetoed the bill. Council overrode him, unanimously: Damn the consequences for the pension fund, and to hell with public opinion.