Michael Nutter’s Numbers Don’t Add Up

With its looming pension debacle and scandalous DROP program, the city is headed for an even greater financial catastrophe

Philadelphia Mayor Michael Nutter has stated his desire to leave the city better than he found it.

Fat chance.

Nutter’s  unwavering — and incredibly naïve— belief that he can tax Philadelphia out of its cataclysmic financial crisis has plunged the city further into the abyss.

Perhaps the greatest example of the city’s peril is the pension bomb that is about to explode. [SIGNUP]

Any pension funded at less than 50 percent — money currently in that pension to pay for future retirees — is considered “severely distressed.”  That’s insider-speak for the brink of insolvency, where there isn’t enough money to even meet bare bones requirements.

And what is Philadelphia’s pension?

It’s 45 percent funded.  In other words, it’s underfunded by a staggering 55 percent.

The mayor’s solution, which wouldn’t have a prayer of succeeding in a booming economy let alone a recession, was to raise the city portion of the sales tax by 100 percent and to defer payments to the city pension for the next two years. And incredibly, the Pennsylvania legislature and Governor Rendell gave the mayor a law doing just that.

That’s right. Nutter wants to turn the tide on a woefully underfunded pension by not contributing even the basic funding levels for the next two years. His rationale, if one can call it that, is to provide time to get his city’s fiscal house in order.

Is this making ANY sense yet?

In year three, conveniently after Nutter stands for reelection, the Mayor intends to make a whopping $850 million lump sum payment to rescue the pension.

Which, quite simply, cannot and will not happen.

So he will either have to:

A)  tell retirees that they’re not getting their pension (and to find a job if they hope to keep their house),

B)  throw the rest of Pennsylvania taxpayers under the bus by making them pay for his mistake.

Quite a legacy for the mayor.

* * *

But the mayor is no rookie when it comes to pension debacles.

In 1999, then-City Councilman Nutter helped adopt a pension plan called DROP (Deferred Retirement Option Plan), which was signed into law by then-Mayor Ed Rendell. DROP was created to keep city employees from taking early retirement, accomplished through a financial windfall incentive plan.

The DROP plan was originally intended for just police and firefighters but later expanded to include all city employees and elected officials. After setting a retirement date four years in the future, DROP enrollees, upon officially retiring, receive a whopping lump sum of four years’ worth of pension benefits plus guaranteed interest.

Mind you, this is in addition to their regular pension — and Philadelphia’s pension plan is one of the most lavish in the nation — and at least five years of health benefits.

Here’s the kicker: some well-connected appointed and elected officials have abused the system by “retiring” for one day. They then collect a huge amount of money, and return to their jobs almost immediately.

All told, 40 officials have exercised this lucrative option, including city councilwoman Joan Krajewski (who banked nearly $275,000), city commissioner Marge Tartaglione, former police commissioner Sylvester Johnson and former deputy police commissioner Robert Mitchell.

How can they do this?  How can such an obscene act be legal?

Because the very people benefitting the most from DROP are the ones who created it.

Kind of gives new meaning to the fox guarding the henhouse.

According to City Paper, which did an excellent overview of how monumentally bad the DROP program is for Philadelphia, there are six City Councilmen who, should they retire in 2011 and 2012, will receive lump sums ranging from $195,000 to almost $600,000.

The largest recipient of DROP’s largesse is Council president Anna Verna.  If she runs for reelection next year and “retires” for one day before being sworn in for her next term, she will cash-out to the tune of $585,000, before resuming her salary of nearly $150,000.

And her normal pension, which now stands at $133,000 per year when she truly retires, wouldn’t be affected in the slightest.

Not a bad reward when you consider that Verna herself is, in large part (along with Nutter), responsible for a city that has gone the wrong way in every category: it ranks among the highest in the nation for murder, violence and poverty; the high school graduation rate is dismal; businesses and families flee because of crushing taxes while services continue to deteriorate; and the city schools have become deathtraps where survival — not teaching and learning — is the order of the day.

And yes, the city — her city — has a pension system that cannot be sustained, creating the very real possibility that thousands will be forced out of retirement and into a terrible economy just to stave off losing their homes.

The system isn’t broken. It’s fixed.  As in…the fix is in.

If you happen to be one of the elite, privileged enough to write laws that benefit the very few, including yourself, while putting the screws to the people you purport to represent, then life is good.

But if you’re one of the other 1.5 million Philadelphians who believe in hard work and fair play, you’re out of luck.

All corruption is criminal, but not all is illegal.

The reprehensible behavior of those who trample on the backs of trusting voters must come to an end. A step in the right direction occurred when the state legislature voted to eliminate elected officials from participating in DROP.

But that won’t stop current officials from getting rich at taxpayers’ expense, since the DROP cash-out is legal and the lump sum payment cannot be altered or eliminated for those scheduled to receive it.

Accordingly, Freindly Fire will be asking the six City Council members scheduled to “retire” next year whether they intend to stand for reelection, and if so, whether they will put in writing their intent not to game the system for their own personal profit by cashing out before the next inauguration.

Their answers will give keen insight into whether the city will begin to right itself, or whether the citizens’ level of cynicism and mistrust will grow to toxic levels.

But given Philadelphia’s culture of corruption, I wouldn’t hold my breath.

Chris Freind is an independent columnist and investigative reporter who operates his own news bureau, www.FreindlyFireZone.com. Readers of his column, “Freindly Fire,” hail from six continents, thirty countries and all fifty states. His work has been referenced in numerous publications including The Wall Street Journal, National Review Online, foreign newspapers, and in Dick Morris’ recent bestseller “Catastrophe.”
Freind also serves as a weekly guest commentator on the Philadelphia-area talk radio show, Political Talk (WCHE 1520), and makes numerous other television and radio appearances.  He can be reached at CF@FreindlyFireZone.com