BEFORE HE WAS a member of Nutter’s administration, Dubow, the city finance director, liked to compare the city’s pension problem to the Blob, the gelatinous star of the 1950s sci-fi film that enveloped its victims. “It just keeps consuming more and more and more,” Dubow once said, “and eventually you will find everything’s gone, the town’s been eaten and destroyed.”
He issued that warning five years ago. And sure enough, the Blob—the annual city pension payment—has grown by 32 percent since then. But the town is still here. Battered, yes, but still standing. And that, really, is part of the problem. In contrast to Philadelphia’s 1991 fiscal crisis, the city’s underfunded pension plan is unlikely to create a moment dire enough to force the public and City Hall to prioritize the problem. Philadelphia is in no real danger of declaring bankruptcy over its pension obligations. The city won’t suddenly cut pensioners off; the state constitution forbids it. Unlike in 1991, there’s no short-term risk that City Hall will start bouncing checks.
The pension crisis is better understood as a long-term hardship, an enormous fiscal weight to be borne for years to come, a stone heavy enough to prevent Philadelphia from doing what other cities seem to pull off with such frequency: a Millennium Park, a renovated High Line, a waterfront worth visiting. This year, for instance, Nutter’s budget calls for $99 million in new City Hall spending. It’s a pittance, really, in a $3.6 billion budget, but a welcome one for city departments that have been cut back three years running. The only problem is that the city’s voracious pensioners have already spoken for $75 million of the new spending. What’s left behind, $24 million, isn’t even enough to keep up with inflation.
What’s the way out? In the short term, the options are limited. The only way to reduce pension payments immediately is to see what the municipal scrapyard is offering. How much would the private sector pay for the Philadelphia Gas Works? How much for the Water Department? Is there a way to sell off the Parking Authority’s lucrative airport garages? Perhaps we could even sell the Parking Authority itself (a deal that would require state blessing).
The idea is that the city would cash in whatever assets it could and sink the proceeds into the pension fund. That, in turn, would lower what the city has to pay into the fund each year. The trouble is, such sales are extraordinarily complicated, and it’s not even clear how much the city would net. Selling off PGW could yield as much as $350 million, according to a recent report. Or, the same report said, the transaction could yield next to nothing.
Long-term, the fixes are obvious, provided our political leaders can find the spine to face down the unions. The city needs to shift to 401(k)-type plans, or greatly increase employee contributions to the pension fund. Sane policy requires reforms that would prevent overtime spiking and other tricky maneuvers designed to inflate lifetime pension payments. The city must kill DROP, and tie cost-of-living increases for retirees to a predictable formula, since City Council can’t be trusted to stand up to political pressure. It must keep its workforce lean. And above all, it has to stop shorting the fund: Pay what must be paid, so that someday the Blob can be beaten back.
Sam Katz, the former mayoral candidate and current chairman of PICA, has put together a short presentation for business leaders and politicians that endeavors to explain just how daunting the pension problem has become. It’s got clip art, and a few comics thrown in to keep people awake, but the message is as serious as it is depressing. He’s titled it “The Pension Crisis: Here Today, Here Tomorrow.”