When the Kenney administration announced its new contract with the city's blue-collar union on Friday, it suggested that changes to the union's retirement plan would benefit the city's underfunded pension fund.
"Making the pension fund sustainable has been a key goal of my administration from the beginning," Mayor Kenney said in the announcement of the $175 million four-year contract.
But when questioned this week, administration officials could not say by how much the pension deficit would be reduced given the changes. The city is $5.9 billion short of its $11 billion pension liability, making it one of the worst-funded public pension plans in the country.
"The pension plan's actuary will determine the impact of this proposal on the pension fund," city spokesman Mike Dunn said in an email.
City Finance Director Rob Dubow said Wednesday that the city had studied the impact of some of the proposed changes to the union's pension plan and found they would accelerate the reduction of the pension shortfall. He said it had not analyzed how the final settlement numbers would ultimately affect the pension fund.
Terms of the new contracts are as follows: Current employees with a base salary of more than $45,000 a year will pay between 0.5 percent and 3 percent more toward their pension, depending on their salary bracket. For example, those earning $55,000 to $75,000 will contribute 1.5 percent and those earning $100,000 or more will pay 3 percent more.
Currently, most D.C. 33 employees contribute 3 percent of their pay into the pension fund. As part of the contract, the controversial Deferred Retirement Option Plan (DROP) will remain, with future participants earning 0.5 percent interest in their four-year DROP account.
Only a third of D.C. 33's 7,900 city workers would have to contribute more. The average salary of a D.C. 33 employee is about $38,000, according to city officials.
The city will institute what it is calling a "stacked hybrid" pension fund for new hires. Employees will still receive the standard defined pension plan based on what they earn up to $50,000 a year. Above that, they can enroll in a 401(k)-type plan. The city will match half of the employee's contribution up to 1.5 percent of annual compensation.
The contract also includes 3 percent raises for all 7,000 union members working in city government for its first, second, and fourth years. In Year 3, employees will receive a 2.5 percent raise, for a total wage increase of 11.5 percent over the contract's lifetime.
The annual rate of inflation has not exceeded 2 percent in the last four years, according to the U.S. Bureau of Labor Statistics.
Francis Ryan, a labor studies professor at Rutgers University who wrote a book on the history of the Philadelphia AFSCME union, said the contract was one of the more generous seen in recent mayoral administrations. He said that under the Tate and Rizzo administrations of the 1960s and 1970s, contracts were particularly positive for the union, but added that "today's climate is very different."
"It's very rare that a union of sanitation workers and crossing guards and City Hall clerks are able to get any kind of raise," Ryan said. "In many ways they're maintaining their jobs from being cut."
Councilwoman Maria Quiñones-Sánchez, chairwoman of Council's Appropriations Committee, said the raises were long overdue, considering that the city's blue-collar union is its lowest paid and that its workers went without raises for much of the recession.
"They've put, as we would say, a lot of skin in the game," she said. "And they deserve this."
The administration, however, has not specified how it will pay for the raises, only that it will find the money within the five-year plan.
Rick Dreyfuss, an actuary and a senior fellow at the Harrisburg-based think tank Commonwealth Foundation, said the lack of specificity should raise red flags for Philadelphia taxpayers.
"The fundamental driver of any labor contract should be the employer's ability to pay," Dreyfuss said. "When I see 3 percent increases, how is Philadelphia fiscally able to afford this?"
On the retirement front, Dreyfuss said that increased contributions were a good thing but didn't solve the more immediate issue.
"You still have a $6 billion deficit," he said. "This doesn't increase it, but it also doesn't decrease it."
Sam Katz, former chairman of the city fiscal watchdog Philadelphia Intergovernmental Cooperration Authority, echoed Dreyfuss' comments by saying the contract had some positive aspects but didn't address "the problem."
"Anything that doesn't deal with today's problem [the $6 billion deficit] is a distraction and enables people to avoid the inevitable," Katz said, referencing possible liquidity and a growing budget crisis every year. "The pension crisis in Philadelphia is hidden in plain sight."
Quiñones-Sánchez said that the pension crisis was the product of earlier pension plans and that to try to fix it with a contract that will affect more recent hires was unfair.
"We cannot pay for bad policies off their backs," she said.