Like its headline-grabbing neighbor to the north — Harrisburg — York faces challenges that have pushed it to the brink of fiscal distress.
Harrisburg’s debt is largely tied to its troubled incinerator. York is dealing with another issue that has been affecting municipalities across the commonwealth: pension obligations.
While the capital city’s pension assets still outpace its liabilities, the White Rose city has amassed a $55 million unfunded liability, according to its 2011 actuarial report. But that is an improvement from two years earlier.
York’s debt is largely driven by its pension funds for city police and firefighters. The unfunded police liability is $34.6 million, or 63 percent, of the total.
“This has been developing for years,” said Henry Nixon, City Council vice president. “The issue is always, ‘Is there enough money?’ And there never is.”
The recent recession had a big impact on fund investments. The police fund was expected to close 2008 with a market value of $43.9 million. Instead, it closed at $28 million. The firefighters fund was expected to be $28.1 million at the end of 2008. Its market value was $17.9 million. The 2011 actuarial report pegged the unfunded liability at $17.2 million, or 31 percent, of the total.
“We are hoping the Legislature will enact some sort of legislation to give third-class cities a break in all this,” Nixon said. “If we could arrest the growth, that would certainly help for the future.”
Since 2008, York has delayed a portion of its pension contributions — usually about half — to the subsequent year.
“We did it because of constipation in the credit markets,” said Michael O’Rourke, the city’s business administrator. “We didn’t know if we could get a tax anticipation note in the beginning of 2009. After the economy impacted some of our revenue, we did it as a cash flow strategy.”
The city has a general fund budget of about $42 million, and its minimum municipal obligation, or MMO, for pensions is $6.02 million this year and $5.72 million next year as mandated by the state, O’Rourke said. The city is delaying about half of its MMO this year because of a $7 million accumulated structural deficit from 2008 to 2011, he said.
“We’re being very frugal,” he said. The city’s MMO is going down because asset value has recovered.
“The strategy is not to get (the unfunded liability) paid off in the next couple of years,” O’Rourke said. “We’re on schedule to meet the amortization schedules adopted.”
A state law passed in 2004 gave York the ability to change the amortization period from 15 to 30 years on unfunded actuarial accrued liability. York also has been helped by the state’s Act 44 legislation in 2009, which created a short-term reduced amortization contribution to fund distressed plans, providing some cash flow relief for struggling municipalities.
The law amended the Municipal Pension Plan Funding Standard and Recovery Act 205 of 1984. A section of Act 205 establishes a distress score based on the aggregate funded ration of a municipality’s pension plan. That score is used to determine a distress level and a municipality’s corresponding funding ratio. York falls under the “moderately distressed” category, or less than 70 percent funded.
The city is using a 75-percent amortization option to cover its MMO. That relief is slated to go away in 2015, which should mean some level of a spike in the MMO, O’Rourke said.
“The 75 percent was put in to give municipalities a bridge during a time when asset values were very low,” he said.
The gap measure assumes assets are recovering and will gain something beyond where they were pre-recession, O’Rourke said.
Without favorable legislation in the near future, “drastic” steps could be necessary for York, Nixon said, including the sale of the city’s sewer system.
Officials also have been talking about a commuter tax. A commuter tax is an earned income tax that would apply to people who work in the city but live elsewhere. It would be in addition to EIT they’re already paying to their home municipalities.
O’Rourke pegged it as a distressed pension income tax, which would give the city the ability to raise its EIT on everyone who works in the city. That discussion could occur next year, he said.
“We don’t know what it will go to,” he said of the possible increase. The home community is entitled to be paid first. If it has a higher EIT rate already — for example, 1.5 percent — York would have to consider something higher to garner a piece of the tax.