Nutter proposes shifting pension costs to future

A plan to reduce the city's near-term pension costs and shift more of the multibillion-dollar burden to future taxpayers was unveiled yesterday by Mayor Nutter and City Controller Alan Butkovitz.

The proposal, projected to cut the city's pension payments by $200 million over the next five years, would help ease the city's budget crisis but would stretch out the debt until today's schoolchildren are in their 50s.

Among other measures, the city is seeking a change in state law that would provide up to 40 years to deal with the pension system's enormous unfunded liabilities - most recently estimated at a record $5.2 billion, after last year's Wall Street collapse.

Butkovitz, who developed the plan and then secured the mayor's support for it, said that cities throughout the commonwealth are facing similar problems, many of their pension systems even weaker than Philadelphia's.

The pension problem is just one important front in the city's budget struggles. Nutter is trying to deal with projected budget deficits totaling $1 billion over the next five years, on top of prior cuts affecting fire companies, swimming pools and other services, for which the mayor has faced severe public criticism.

"At a time when the city is facing unprecedented financial challenges, it is critical that we examine every possible option that might help us weather this storm," the mayor said in a news release.

Butkovitz told reporters his pension proposal is "like remortgaging your house."

"We have a financial crisis, and we have to shrink what we're paying in the near term," Butkovitz said. "Pension costs are eating our budget alive."

The first stage of the plan was approved unanimously yesterday by the nine-member city pension board, composed of four officials in the Nutter administration and four representatives of the municipal unions, plus Butkovitz.

The board lowered its estimate for future earnings on its pension-fund investments, from an 8.75 percent annual return to 8.25 percent.

The total value of the pension fund's investments at the end of 2008 was $3.6 billion, down nearly 25 percent for the year.

Based on the city's obligations to pay pensions to thousands of current and retired city workers, actuaries have calculated the fund should have assets of $8.8 billion. That leaves a $5.2 billion hole.

Butkovitz, seeking re-election this year, has three likely opponents who had different reactions to the pension proposal.

"It's not a bad idea, it's not a new idea," said Brett Mandel, former leader of the civic group Philadelphia Forward. "We've created this [pension] problem over a couple of generations, so it makes some sense to have us and our children and grandchildren fix this problem."

Republican Albert Schmidt, a former auditor for the Government Accountability Office in Washington, disagreed. "It's an accounting gimmick, and a dangerous one," he said. "It's why mortgage companies don't give you a 60-year mortgage on your house - you're not going to pay it, your children will pay it, provided they're still in the city by then."

Former Judge John Braxton questioned whether the pension fund's projected investment return, now 8.25 percent, was conservative enough. *