Johnstown hands out excessive pensions as it deals with $24M in debt
By Eric Boehm | PA Independent
Johnstown is deep in pension debt, but is handing out retirement payments in excess of what is allowed under state law.
A recent audit of the city’s four pension funds found more than $24 million in unfunded liabilities. Collectively, the four retirement accounts for the city’s police officers, firefighters, sewage workers and non-uniformed employees have less than 50 percent of the assets needed to cover promised retirement benefits, earning the city a place among Pennsylvania’s most distressed municipal pension plans.
SWEPT AWAY: Though it is more famous for a series of devastating floods throughout its history, Johnstown’s declining population and excessive pension benefits have flooded the city government with red ink in recent decades.
“We are extremely concerned about the funded status of the individual plans,” wrote Eugene DePasquale, the state’s auditor general, in a letter to city officials regarding the audit.
Johnstown is hardly alone in that respect. Like many Rust Belt cities across Pennsylvania and surrounding states, the combination of deindustrialization and a declining population — Johnstown is home to about 21,000 people, down from 63,000 in 1950 — has eroded the tax bases that sustains the city’s coffers and, in turn, the pension system.
Even as it struggles with millions of dollars in pension-related debt, the city is promising overly-lavish benefits to current workers and new hires, the audit found.
State law requires that third class cities (basically any city in Pennsylvania other than Philadelphia and Pittsburgh) use a formula based on years of service to determine pension benefits. But Johnstown’s police and firefighter pension plans are using a different formula that could result in the payment of pension benefits in excess of what is allowed for third class cities under state law, the audit found.
“The provision of excess benefits increases the plan’s pension costs and reduces the amount of funds available for investment purposes or the payment of authorized benefits or administrative expenses,” auditors wrote. “The provision of excess benefits could result in the receipt of excess state aid in the future and could increase required municipal contributions to the plan.”
Although the state hasn’t yet stepped in to aid Johnstown’s pension fund, auditors warn that any future state aid wouldn’t cover the over-promised benefits.
The same issue was raised in a previous audit of the city’s pension funds, but no changes were made.
City officials didn’t dispute any of the findings of the audit and they say they’re now trying to fix the overpayments. Officials have presented alternative pension plans to the unions representing the police and firefighters, and are awaiting a response.
Despite the problems, the city has met its annual obligations to the pension system for each of the last five years. It plans to contribute more than $3 million to the four plans in 2014, though it would take a one-time infusion of more than $20 million to eliminate the unfunded liability.
There are 139 active employees in the four pension systems, along with 245 retirees currently collecting benefits.
Boehm can be reached at Eric@PAIndependent.com and follow @PAIndependent on Twitter for more.