COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON LABOR AND CIVIL SERVICE - - - Room 400, City Hall Philadelphia, Pennsylvania Tuesday, February 27, 2007 10:10 a.m. - - - PRESENT: COUNCILMAN JUAN RAMOS, CHAIR COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN FRANK DiCICCO COUNCILMAN WILLIAM GREENLEE COUNCILMAN JACK KELLY COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN BRIAN O'NEILL BILL 060828 - An ordinance amending Section 15 22-311 of The Philadelphia Code, entitled "Cost-of-Living Measures for Retirees, Beneficiaries and Survivors..." BILL 060892 - An ordinance amending Title of The Philadelphia Code, entitled "Officers 18 and Employees..." 19 BILL 060959 - An ordinance amending Title 9 of The Philadelphia Code, entitled "Regulation of 20 Businesses, Trades and Professions..." - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 2
Good morning, everyone. This is the Committee on Labor and Civil Service. I am Juan Ramos, Chairman of the Committee. Please note also in attendance are Councilman Wilson Goode, Vice-Chairman of the Committee. To my left, Councilman Kenney. To my right, Councilman DiCicco and Councilman Greenlee. And we have a quorum. I would note for the record that Bill No. 060959 will be held today and the hearing for that bill will take place on March the 12th at 10:00 a.m. I will please ask the Clerk to read the title of the first Bill.
Bill 060892, an ordinance amending Title of The 20 Philadelphia Code, entitled "Officers and Employees," by providing a civil service preference for the children of Philadelphia police officers and firefighters who were killed or who died in the line of duty, all under certain 3 2/27/07 - LABOR - BILL 060828, ETC. terms and conditions.
I would like to call to the witness table Robert Eddis, President of the FOP, and Brian McBride, President of Local 22, Firefighters Union. Please state your name for the record and proceed with your testimony. MR. McBRIDE: Brian McBride, President of IAFF, Local 22, Philadelphia, representing the police -- not representing the police; representing the firefighters and paramedics of Philadelphia.
As you can see, in our city we get along so well, the Police and Fire, we're basically one and the same. Bobby Eddis, President of Fraternal Order of Police, Lodge No. 5, City of Philadelphia. MR. McBRIDE: This bill here represents the will of the people. It was put forth to the voters in November 4 2/27/07 - LABOR - BILL 060828, ETC. to allow a preference similar to that of a veterans preference for the children of Police and Fire who gave their lives in the line of duty. It's the will of the people that this be put into action and that the Code be amended to reflect this.
Basically, we have exactly the same stance. We thank you for taking this initiative to look at this, because we know what it's like to come from the law enforcement and firefighter family. We're very close. And we're just hoping that our children and the children of our officers and firefighters who gave their lives can follow in our footsteps and they'll be able to serve our city as well.
Seeing none, thank you for your testimony this morning. MR. McBRIDE: Thank you. 5 2/27/07 - LABOR - BILL 060828, ETC.
Our next witness is Tanya Smith, Personnel Director. Please proceed. Please state your name for the record.
Tanya D. Smith. Good morning, Chairman Ramos and members of the Committee on Labor and Civil Service. My name is Tanya D. Smith and I am the City's Personnel Director. I am here to present testimony regarding this bill amending Title of The 15 Philadelphia Code. 16 The Personnel Department fully 17 supports City Council's acknowledgment of 18 the gallantry of the City's uniformed 19 employees who have lost their lives in 20 the course of performing their duties. In recognition of the devastation and grief caused the families of these public servants, we endorse and stand ready to implement this proposed amendment to Title 20 of The Philadelphia Code. 6 2/27/07 - LABOR - BILL 060828, ETC. Thank you for providing me the opportunity to address you. This concludes my testimony, and if there are any questions.
Thank you for your testimony. Any questions for this witness from the Committee? (No response.)
I want to acknowledge that Councilman Kelly has joined us. Seeing none, thank you for your testimony this morning.
Is there anyone else who wishes to testify on this bill? (No response.)
If not, I will ask the Clerk to read the title of the next bill.
Bill 060828, an ordinance amending Section 22-311 of The 7 2/27/07 - LABOR - BILL 060828, ETC. Philadelphia Code, entitled "Cost-of-Living Measures for Retirees, Beneficiaries and Survivors," by amending the provisions governing when deposits are made into the Pension Adjustment Fund, all under certain terms and conditions.
I would like to call to the witness table, according to this witness list, Mr. Vince Jannetti, Director of Finance. Good morning, Mr. Jannetti. Please state your name for the record and proceed with your testimony.
Good morning, Councilman Ramos and members of the Committee on Labor and Civil Service. I am Vince Jannetti, Acting Director of Finance and Chairman of the Board of Pensions and Retirement. I'm here to testify against Bill No. 7 percent before payments can be made 8 2/27/07 - LABOR - BILL 060828, ETC. from the Pension Adjustment Fund. The Pension Adjustment Fund was created on July 1, 1999 and was intended to be a pool of money set aside for the distribution of cost of living measures as determined by the Board for retirees, beneficiaries and survivors. Since the creation of the Pension Adjustment Fund, the Board has used the fund to make bonus payments to retirees under certain terms and conditions. Under the current Pension Code, the PAF receives half of the excess returns, the five-year smoothed return, earned in a fiscal year in the range from one to six percent above the assumed interest earnings rate. 75 percent. 75 percent in any given year, half of this excess would be diverted to the Pension Adjustment Fund. Currently, payments are only made to the PAF if the overall pension plan funding level of 9 2/27/07 - LABOR - BILL 060828, ETC. 7 percent is achieved. 5 percent in '01 to only 53 percent in the most recent year, there have not been recent contributions to the PAF. We were hopeful that with the bad asset return years dropping off that the next few years would provide the City with an ability to catch up and better fund the Pension Fund. We believe that improving the City's ability to provide mandated benefits through the fund should be a more immediate priority than expanding benefits. Any excess return would better serve our retirees by being invested in the fund to grow the fund and reduce the unfunded liability. We must also remember that the Pension Fund earnings support not only retirees but active members of the Pension Plan in the future. 7 percent before 10 2/27/07 - LABOR - BILL 060828, ETC. a contribution could be made to the Pension Adjustment Fund. 75 percent immediately with the PAF regardless of how poor the condition the Pension Plan is in. Our Pension Fund is currently, as I said, 53 percent funded, a dangerously low level and a level that is one of the lowest of major cities in the country, according to a recent Moody's report. 71 billion, only slightly less than the entire General Fund budget for Fiscal Year '07. This means if we did not pay any employees, buy any products or services and continued to collect full taxes for a year, we would still barely have enough money to fully fund the Pension Plan. Improving the percentage by which our Pension Fund is funded can only 11 2/27/07 - LABOR - BILL 060828, ETC. be achieved through investment gains or taxpayer contributions over the next several years. Bill 060828 would reduce the City's ability to catch up on the unfunded liability by diverting investment gains to the Pension Fund, at a time when our fund could benefit from improved funding. 7 percent for an additional 13 to 15 years, assuming the returns meet the assumption rate, due to the earlier losses in the Administration caused by the downturn in the markets, recent low interest rates and the shift to the MMO. 7 percent funding. In addition, the estimates indicated that the City would require to contribute an additional $300 to $600 million more from the General Fund than it would under the current 12 2/27/07 - LABOR - BILL 060828, ETC. Pension Code because of the diversion of excess returns to the PAF. In other words, taxpayers currently bear the burden when the earnings assumption rate is not achieved. With passage of this bill, taxpayers would also bear the burden when we exceed the earnings assumption and trigger a payment to the Pension Adjustment Fund. Dollars that would have previously gone to strengthen the fiscal health and stability of the Pension Fund will now go to enrich the already generous benefits for retired City employees. 1 million.
2 million by Fiscal '12, a 17 percent increase from '07 and a 152 increase from the FY01 when our pension payment was under $200 million. During the same periods, revenues will only grow 12 percent and 38 percent, respectively. It is likely that if the fund 13 2/27/07 - LABOR - BILL 060828, ETC. 75 annually over the life of the plan, a payment will still need to be made to the Pension Adjustment Fund if this bill is enacted due to the five-year smoothing. By eliminating the fund basis requirement, any upside that would normally go to strengthen the Pension Fund would now be split between the Pension Fund and the Pension Adjustment Fund. The City would then have to make up for this lost cash through extra contributions over a 15-year amortization. In other words, we would have to make higher MMO payments during the life of the plan and would leave future administrations with even higher pension benefit costs, further squeezing the City's ability to provide high-quality citizen services or continue tax reductions. I urge this Committee to not vote in support of this bill. It is fiscally irresponsible to divert funds 14 2/27/07 - LABOR - BILL 060828, ETC. S. cities. This concludes my testimony. I would be happy to answer any questions the Committee might have.
Thank you, Mr. Jannetti, for your testimony. Councilman Kenney.
Thank you, Mr. Chairman. Mr. Jannetti, the condition of the Pension Fund, its under-performance, is based on what? What are the factors that created the under-performing pension fund, at least within the last eight, ten, 12 years?
The Pension Fund -- the performance has been up and down. I mean, one of the big hits on the Pension Fund was the downturn in '01.
And because 15 2/27/07 - LABOR - BILL 060828, ETC. the decisions that were made to invest in certain segments of the economy when the downturn in '01 came, we got hit extra bad, right?
And those decisions to invest in certain sectors of the economy was made by who?
So the consultants recommended the decisions be made to invest in certain segments of the economy and in '01 when we took a bath, the fund took a bath -- and I recognize that the members of the Pension Board are not necessarily experts in investment banking but followed the advice of people that they hired to give them advice on what to invest in. Is that fair? 16 2/27/07 - LABOR - BILL 060828, ETC.
So none of the people in this room who are affected by their cost of living adjustments or by their pensions had a hand in making the decisions on what to invest in and what not to get out of or when to get out of it, and so when '01 hit, we just basically took a bath?
And none of the people in this room, who we have made a pact with because they've contributed their life and their careers to service the City of Philadelphia and its citizens, had no hand in the decision-making process as to what to invest in, dot-com or otherwise?
I recognize your position as Finance Director and as Chairman of the Board of Pensions, but isn't there some responsibility that we have to them to ensure that they can 17 2/27/07 - LABOR - BILL 060828, ETC. continue to live without going into poverty? Some of these people we're talking about have been out for quite some time and the level of their pension is just not enough to make ends meet and to live a decent life, and I think despite the numbers, we have a responsibility to do something about it from a moral standpoint.
Because I don't want to dismiss the financial aspects of what you're talking about, because I think they're critical and they're important and we have to make a decision on what we do about it in the future, but in the meantime, these are real people with real lives and real bills and real food needs and housing needs. I mean, I guess I take it a little more personally because of my own background, but I think that we owe them. 18 2/27/07 - LABOR - BILL 060828, ETC. It's almost like they're combat veterans, they're our soldiers, and they did what they had to do for us and we still have to do for them. And we're not asking for a lot to be done, because any COLA adjustment is not going to be even significant to change their life-style. They're not going to Club Med on it. I mean, they're going to buy food. And the people whose -- employees who have passed away and their widows, I think it's something we're morally required to do. And I know the other side of it is we're going to have to deal with the real issue of the finances, but I don't know how we say no, because at this rate, they're never going to get an adjustment. I mean, if we're at 54, 56 and we got to get to 77, I mean, they're going to starve to death. And I just think we have no other choice. So I do appreciate your testimony, but I think that's where we're at. 19 2/27/07 - LABOR - BILL 060828, ETC.
Thank you, Councilman Kenney. I echo the sentiments of Councilman Kenney. I recognize Councilman Goode.
Thank you, Mr. Chairman. Mr. Jannetti, let me continue along that line of questioning and commentary. You say in your testimony that Philadelphia has one of the most poorly funded pensions of major U.S. cities. Why is that?
Because in years past we didn't fully fund the Pension Fund because of the downturn in the markets and because of our ability to pay even recently. We paid a minimum municipal obligation, and our ability to pay is limited. 20 2/27/07 - LABOR - BILL 060828, ETC.
So the ability to pay is based upon two things: One, a decision to fund at a certain level and, two, the performance in terms of investment return; is that true?
And so when there was a downturn nationally, there was also worse of a downturn locally in terms of investments that were made here; is that correct?
Yes. I believe -- I don't know what the numbers are, Councilman, but the Pension Fund lost a significant amount of money.
We lost more than other cities. We performed worse. Do we know how much worse?
In your testimony you say that it is likely the fund earns only the assumed earnings assumption of 8.75 percent annually over 21 2/27/07 - LABOR - BILL 060828, ETC. the life of the plan. That's an interesting comment. So you're saying that you don't expect to do that much better or is that a conservative assumption?
What we're saying there -- I mean, the assumption is not conservative, actually. It's pretty high, but we have -- we do a five-year smoothing on this and some of the recent years are higher than 8.75.
When the Pension Adjustment Fund was set up in 1999, do you know what the return was?
When the Pension Adjustment Fund was set up in 1999, do you know what the assumed earnings assumption rate was?
And so you still expected over the life of the plan to stay constant. Why is that? I understand the smoothing.
That's the assumption that we have made on the earnings. I mean, this way the actuary has a target to do his calculation, his analysis, too, on the required funding levels.
So based upon your testimony and based upon your answer to my questions, are you suggesting that there will never be a point in which we can offer a COLA?
So at what point would we be able to offer a COLA 23 2/27/07 - LABOR - BILL 060828, ETC. and how would that happen?
The COLA -- I mean, as the regs stand now, the COLA would come into play at 76 percent, when the Pension Fund is funded 76 percent.
I'm not talking theoretically. I'm asking you to project financially at what point can we offer a COLA, in your estimate, and how do we get there, how do we achieve that?
Based on the actuary's analysis, that would be around years before we could do a COLA based 15 on what we have in play today.
So essentially you're saying we can't do this not just now but we can't do this period?
I recognize Councilwoman Jannie Blackwell that has joined us. 24 2/27/07 - LABOR - BILL 060828, ETC. Thank you, Councilwoman. I will recognize Councilman Greenlee.
Thank you. Thank you very much. And I have to go. I have a 10:30 meeting out of the building. Thank you, Councilman. But obviously we have all our friends here. This is a tough issue. We know we want to be fiscally responsible, but we do have to recognize and respect all of those people who have worked so hard in Police and Fire, especially those on their pension who are there and are active employees. I know these are tough times, but nonetheless, we do support all our friends here and the legislation. Thank you for the opportunity to say that.
Councilman 25 2/27/07 - LABOR - BILL 060828, ETC. Greenlee.
Thank you, Mr. Chairman. Good morning, Mr. Jannetti.
Along the same lines as the other questioning, in your statement you say that if this bill 11 was passed, it will now go to enrich the already generous benefits for retired City employees. That's a pretty subjective statement, isn't it? I mean, as Councilman Kenney said earlier, we hear from a lot of people saying they can barely make it on what they're doing. I guess along those lines, do you know how what you're calling the already generous benefits compares to some other cities?
I don't know, 2/27/07 - LABOR - BILL 060828, ETC. Councilman. I would have to look into that.
I'm not trying to make a speech here, but on what do you base "already generous benefits"?
When I wrote this, the view was on the total, not so much on an individual's pension. Looking at the $400 million a year we pay.
So you're not saying that necessarily what every pensioner gets is overly generous, right?
I hope not. All right. Thank you. Thank you, Mr. Chair.
Any other questions from this Committee for Mr. Jannetti? 27 2/27/07 - LABOR - BILL 060828, ETC. Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Mr. Chair. Mr. Jannetti, do you happen to know what the average pensioner receives? Is there an average number?
I don't know that, Councilman. We will get that for you, sir. I don't know. COUNCILMAN DiCICCO: I'd appreciate if you could provide that to the Chair as well.
Absolutely. COUNCILMAN DiCICCO: And you did say 15 years? Did I hear that?
Based on what we have in play today earning 8.75. That's not to say that we won't earn, you know, 10, 11, whatever, which -- COUNCILMAN DiCICCO: You're being cautious.
I'm being cautious, yes. COUNCILMAN DiCICCO: Thank you. 28 2/27/07 - LABOR - BILL 060828, ETC.
Thank you, Mr. Chairman. Mr. Jannetti, I just have a quick question here. The Pension Fund itself, going back four or five years, what kind of state was it in then?
I'm going to ask Chris McDonough, the Chief Investment Officer for the fund, to speak to that. MR. McDONOUGH: The funding level has decreased from 76 percent in 2000 to 53 percent in 2005.
What's the overall reason for that, basically? Was it because of the way we made investments? MR. McDONOUGH: I believe it was a combination of poor investment returns and a shift to the MMO payment, 29 2/27/07 - LABOR - BILL 060828, ETC. the minimum municipal obligation.
Well, what is the game plan today? In other words, are we still making lousy investments or are we improving in that realm? MR. McDONOUGH: I don't know that it's fair to say that the Board was making lousy investments. The market as a whole struggled for a three-year period. I do believe the Pension Fund -- we will --
Well, I believe the market has been going up, I think, reasonably well over the last few years. MR. McDONOUGH: You are correct, and the fund has done considerably better over the last few years.
-- the fund itself? 30 2/27/07 - LABOR - BILL 060828, ETC. MR. McDONOUGH: Yes. The returns have been strong for the last four years.
Okay. And the reason that this bill is going to be -- well, would it be as much of a detriment as you were stating this morning? In other words, what is overall the result of this bill? Is it going to be disastrous for the City or is it just --
It will reduce the overall funding of the Pension, the Pension Fund, by half of the earnings, from one to six percent above the earnings assumption. So the City's ability to ever get to 75, 80 percent funding gets limited by this, gets hindered.
Okay. I agree with Councilwoman Blackwell that we just can't forget all the people who have really done a lot for this city over many, many years, and I think that that's 31 2/27/07 - LABOR - BILL 060828, ETC. one of the reasons that this bill, of course, was enacted. And I only think that Councilman Kenney is correct in trying to at least improve slightly the living conditions of the people who are retired now, and I think that's the least we can do at this point. This is something that we have to look at, and I think the City has to do their job improving the investments and doing a lot of other things. We may have to cut corners in other areas, but we just can't forget the people who have dedicated their lives to this city. And I think that's one of the things that we must do and I think it's morally and ethically right to do it. Thank you.
Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Mr. Chairman. Mr. Jannetti, I just had a side-bar conversation with Mr. Eddis and 32 2/27/07 - LABOR - BILL 060828, ETC. he showed me a flow chart, if you will, and it identifies pensioners and the monthly payments they're getting based on age and I guess years of service, and the highest amount of money any individual receives is $2,177, and there are many people way below that. So it ranges anywhere from a few hundred dollars a month up to 2,177. And out of that monies, they have to pay for their own health benefits and other obviously cost of living issues. And I understand you're not here to morally suggest that these folks don't deserve more money. I understand that. You have a responsibility, as we all do, to figure out how to utilize the resources, our General Fund money that we collect to the best maximum, how to figure out and how to keep this Pension Fund afloat. But when you break that out, at the maximum somebody is maybe getting $400, $500 a month before all expenses. I mean, that is probably close 33 2/27/07 - LABOR - BILL 060828, ETC. to poverty level. I mean, I don't know what the national average is now, but it's probably pretty close to that. So we're going to have to figure that other stuff out that you've talked about on the funding when we go through our budget process in the next couple of months, with always keeping our eye on the ball, if you will, when it comes to this COLA issue, because that is certainly a pittance in today's world to have to survive on that kind of money, and we need to figure something out. So I just did get that information, so you don't need to supply it to the Chair. Mr. Eddis will supply it to the Chair for us. Thank you.
Thank you, Councilman. COUNCILMAN DiCICCO: Thank you, Mr. Chairman.
Thank you, 34 2/27/07 - LABOR - BILL 060828, ETC. Mr. Chairman. What were the earnings over the last five years? MR. McDONOUGH: These are by calendar year. In 2006, the return was 14.5. 2005, percent. 2004, 11.8. 8 2003, 23.7. 2002, negative 9.6.
Any other questions for these witnesses? (No response.)
Seeing none, thank you for your testimony this morning. Our next panel of witnesses are Mr. Brian McBride, Mr. Robert Eddis and Mr. James Weeler.
Good morning. Thank you for taking the time to hear this. We really appreciate it. I'll try to be brief in regards to our testimony. I'd like to thank the Councilmembers that were here with us in 1999 when this initiative was passed. 35 2/27/07 - LABOR - BILL 060828, ETC. And I guess we're all scratching our head because we realize prior to that bond being floated, we were at the same 53 percent water level. And the area I have to respond also about, us being fiscally responsible. We, representing our members, are more concerned with, as Councilman Kenney said, moral responsibility. I have 966 members that have over 50 years in that receive less than a thousand dollars a month, and when this bill was originally put in front of Council, there was a lot of work, as Councilman Kenney knows, Councilman DiCicco knows. We got an awful lot of support from Councilman O'Neill, Jannie Blackwell and Michael Nutter, and we did look into the future and we did see what would happen, would there be an evaluation. If for some reason there wasn't a distribution, would there be an opportunity to re-address this issue. And as the bill goes on, it also says 36 2/27/07 - LABOR - BILL 060828, ETC. after a six-year period, if we see that there may have been mistakes, how can we go back and adjust it. And it's our hope today by coming here, seeing that, as was pointed out, the people in this building here that are sitting here with us today had no control over who was making these investments. They gave their life. They gave their career, with the hope that there was going to be something for them at the end of the road. When the bill was etched out, it seems as if it would be something fair. We're not asking to take away and eliminate the funding for the actuary assumption. We knew that. We gave it the actuary assumption plus one additional point and then the difference thereafter capped at a certain level. So there is an awful lot of thought that went into this legislation, with the support of all the unions working together on a common ground 37 2/27/07 - LABOR - BILL 060828, ETC. saying how can we make sure of our retirees later on in life. We know all the unions work in different areas, but we know our city runs because of the people that are sitting here today. Today, I also have my pension rep that is here, Ron Stagliano, as well as Jimmy Turner, who is one of our retirees. And sometimes we as the representative of our bargaining units try to be so sincere in what we're doing, but we don't come across the same way as the person who is actually living it on a daily basis. And it's my honor to introduce one of my retirees, my friend, Jimmy Turner.
My name is James Turner. I'm a retired Police Sergeant with 31 years of service, four years military. I'm not a public speaker, and 38 2/27/07 - LABOR - BILL 060828, ETC. my remarks are going to be very brief. I remember many people in this room, and perhaps some may remember me. The retirees need financial help and they need it now. I am a cancer survivor but not cancer free, and I get many of my services from the Veterans Administration. If not for them, I don't know how I would handle our medical situation in reference to myself and to my family, my wife. So I'm here to show my support, and I can give you an idea of what my pension was, and that was in 1981. This will be very brief. The pension at that time was 19,000 annually. Social Security between my wife and myself totals maybe $8,000. So we're talking about prescription, health, heating, utilities, what-have-you. There's a lot of good men in this audience, a lot of men who worked hard, have given their all for this city. 39 2/27/07 - LABOR - BILL 060828, ETC. And as I said my words before, they need financial help and they need it now. So I'd like to close with a little verse and the verse is, may the road rise up to meet you, may the wind be always at your back, may the sun shine warm upon your face, may the rain fall soft upon your fields, and until we meet again, may the good Lord hold you in the palm of his hand. Thank you. (Applause.)
My name is Ron Stagliano. I retired in 2003 after 33 and a half years in the Police Department. In 2004, I was elected to a seat on the City's Pension Fund as a trustee. Mr. Turner was fairly eloquent. One of the things I didn't bargain for when I was elected as a trustee on the fund -- I knew the fund had tough 40 2/27/07 - LABOR - BILL 060828, ETC. financial times, but you become the voice of all these folks sitting in the audience here, and it's painful to hear their stories, people struggling to pay their medical premium. Don't forget, a lot of these retirees sitting here, Police and Fire, do not qualify for Social Security. They're not part of the Social Security system. There's folks sitting in this room paying three-quarters of their pension for their healthcare. Some of the ones that do qualify for Social Security are subject to the government offset. Even if they qualify as a spouse, that part of their benefit gets taken away because they have a government pension. As a trustee on the Pension Fund, I'm well aware of the fund's financial condition. The fund has done -- I think the fund has performed fairly well over the past three years since I've been there. Actually, the 41 2/27/07 - LABOR - BILL 060828, ETC. fund was nominated this year for an award, mid-size plan of the year, based on the model of its asset allocation, and I think that's a good sign for the fund going forward. But there's a real need here for these folks sitting behind me and I would urge that this bill be passed to give these folks some relief. Thank you.
Thank you, Ron. At this time also, what we have with us is, we have our actuary, Joe Duda, and any questions we can possibly provide today or at any future settings, we're available hours a day. 17 I think everybody sees from our 18 testimony, as you hear from the other, 19 that we're really in a situation that our 20 members are really in need. We come to 21 you for help. We believe that the 22 initial bill has the ability to be able 23 to step in and make the necessary 24 adjustments to be able to provide our members. 42 2/27/07 - LABOR - BILL 060828, ETC. As we heard, 15, years, some of our members won't be here in 15, 16 years. We know -- and I think the ones that sat there when we say this word will all sit back and have a little chuckle when we talked originally about smoothing. Smoothing was something that we got a big kick out of in '99. Smoothing seems to go to from smoothing to be something other than something soft. I think it's become very hard, because every year you're being offset by another. I think that we see at this time based on the legislation that's here, we need Council to step in, make the necessary changes, to let it be determined on this year's performance so we can give these people something while they're still young enough to enjoy it and, more importantly, take care of their families. Any questions we're here.
Any 43 2/27/07 - LABOR - BILL 060828, ETC. questions from this Committee for the panel? (No response.)
Next panel, Mr. Brian McBride. Is Jim Weeler from the FOP also testifying here today, Bobby Eddis?
Okay. Mr. McBride, if you can just bring everyone that we have scheduled here from the FOP to testify to come up, please. The names I have is Mr. John Reilly and I have Mr. Bill Rusdin. MR. McBRIDE: Yes, sir.
Okay. MR. McBRIDE: I want to thank this panel for allowing us this time. When this bill was originally 44 2/27/07 - LABOR - BILL 060828, ETC. conceived, it had the backing and input of four municipal unions. The same applies today. You are joined here today before this Council by District Council 33; District Council 47; FOP, Lodge 5; and IAFF, Local 22. The Pension Fund was funded approximately 52 percent when this bill 10 was originally put forth. Today we are funded at approximately the same. The pension obligation bond, which amounted to $1.25 billion, was deposited by the City on February 2, 1999 and pushed the fund to an artificial high of 76.7 percent, which then became the inflated fund basis for July 1, 1999. No one knew that the funding basis percentage of 76.7 percent, which was a direct result of the pension obligation bond, would deny our retirees, who served this city faithfully, the benefit they so deserved and which was the intent of City Council at the time. I would like to point out that 45 2/27/07 - LABOR - BILL 060828, ETC. the dedicated members of Police and Fire Departments do not pay into Social Security and, therefore, are generally denied that benefit. If they have earned Social Security credits prior to City employment or are forced to take a job while in retirement to meet their needs for healthcare costs or to keep up with the rise in the cost of living, they are further hindered by the government pension offset, which reduces their entitlement by 60 percent for the first years of earned credits. They can, 15 however, earn five percent for each year 16 after 20 years, for a maximum benefit of 17 90 percent at 30 years. 18 Some of our retirees are not 19 even covered by Medicare. One recently 20 chose healthcare over an apartment and is living in his car because he couldn't afford both. We cannot in good conscience allow a retiree to be forced to make this decision. We are asking that the 46 2/27/07 - LABOR - BILL 060828, ETC. honorable members of City Council to recognize the needs of my sisters and brothers who serve this city faithfully -- District Council 33; District Council 47; FOP, Lodge 5; and IAFF, Local -- and correct this by 8 passing Bill No. 060828. 9 I'm joined today by a retiree 10 who is doing very well. His name is Bill 11 Rusdin. I've known him for my 32 years 12 with the Philadelphia Fire Department, 13 and he's been retired for a few years 14 now. 15 Bill Rusdin. 16
Hello. My name is 17 Bill Rusdin, 27 and a half years with the 18 Fire Department and four years military 19 time. I retired in 1992, and at that 20 time, it was a medical reason, lungs and 21 sinus problems and so forth and so on. 22 After being out for approximately four and a half years, that's when, of course, my wife and I sat down and talked and realized that we 47 2/27/07 - LABOR - BILL 060828, ETC. didn't have medical coverage. So we went to the COBRA plan, which was very expensive, and didn't stay on it too long, because my wife surprised me one night after having five children and we now have grandchildren and said, I'm 8 going to go to work, Bill. And I went, 9 Oh, my God. But she did go to work to 10 help supplement our income and, of 11 course, go for the medical part also. 12 Since that time, we're holding 13 on. We're not as bad as other people, 14 but I'm here to represent a small 15 fraction of people of what our future is going to bring us, and that is the fact that with all the medical costs probably going to double in the next ten years or greater, there's going to be a lot of us out there that are going to really have to struggle. The supplement of the income from my wife I've been most grateful for. And not everybody, of course, still has their wives or their wives don't have 48 2/27/07 - LABOR - BILL 060828, ETC. their husbands, and they're the ones that are really suffering out there and need this bill passed to help them along. To speak a little bit about medical, even though my wife is working, who will retire this June, we'll be going into the Medicare and so forth and so on, and everybody knows what that costs and the prescription plans and so forth and so on. This burden that must be with people that don't have any help whatsoever or very little help and are lower income than we are, I ask and beg of you to look at passing this bill to help them and those that are really in need and, of course, a possible set-up for what the future may bring. The financial hardship is tough on people that have something. For those who have little, it's very hard to take. So I thank you for your time and just close saying, with 15 grandchildren and five children, I've been blessed and I do get some help from 49 2/27/07 - LABOR - BILL 060828, ETC. them once in a while with shoveling and going to the store and doing different things. So of those who aren't blessed, I beg of you for their help. Thank you.
Thank you. I thank you for your testimony, but don't ever think you have to ever beg us for anything.
Don't ever think you ever have to beg us for anything. It's something that you deserve.
Thank you. MR. McBRIDE: At this time, I'd like to introduce someone you probably all very well know, John "Moon" Reilly, who is a past President of Local 22 and is our pension representative. 50 2/27/07 - LABOR - BILL 060828, ETC.
Chairman Ramos and members of this Civil Service and Labor Committee, I passed out a package of four different items that you all have right now, and from that, I'm going to start. My name is John A. Reilly, a member of the Philadelphia Board of Pensions and Retirement since 1976, past President of Local 22, Philadelphia Firefighters Union and a retired firefighter, and this is to address and hope with your help the passage of this bill. The Pension Adjustment Fund: This bill is presented from the combined efforts of the four major unions in the City of Philadelphia: District Council 33; District Council 47; Fraternal Order of Police, Lodge 5; and Local 22, Philadelphia Firefighters Union. The Pension Adjustment Fund provided the same monetary provisions as the lump sum payments to the beneficiaries or a survivor who was 60 51 2/27/07 - LABOR - BILL 060828, ETC. years of age and would have been receiving those benefits the last ten years. When this kicked in, you didn't have to be 60 anymore, but you still had to be retired ten years. The Board of Pensions had three options of which to adopt for this here. Pay it to our pensioners. The Board, in full agreement with their fiduciary responsibility, opted lump sum bonuses. This provided one-time payments to retirees, beneficiaries and survivors which do not increase monthly pension benefits. This option allowed the Board to give our retired civil servants and beneficiaries and survivors a pension benefit to reflect their dedication to the City of Philadelphia. This option does not put a financial burden on the City government or the City's taxpayers. It is financed by the growth of the fund by the returns of their investments. If there is no growth of better 52 2/27/07 - LABOR - BILL 060828, ETC. than one percent above the actuary assumption for the fiscal year, there is no disbursement from the Pension Adjustment Fund. If the growth is above one percent of the assumption, those figures above one percent of the actuary assumption and the percent shall be 9 split 50/50 with the Board of Pensions 10 and Retirement and the retirees and their 11 survivors. 12 The percentage of funding of 13 the Board before the infusion of monies 14 from the pension obligation bond was 15 approximately 52 percent. 7 percent. The money from the pension obligation bond was transferred to the Board of Pensions and Retirement on February 2, 1999. Now, I have to tell you in the context what was happening. This bill, the Pension Adjustment Fund, everything was happening at the same time. And the Pension Fund was signed into law. So we 53 2/27/07 - LABOR - BILL 060828, ETC. get that on the 2nd of February. On the 3rd of March of 1999, this becomes law, the Pension Adjustment Fund. So at that point, the funding was about still 52 percent. 7 percent until the closing of the books on June 30th of 1999, and that's where we are. 7 percent funding as the second barrier of making money, giving pension benefits to our retirees, it would never happen. As you heard the Finance Director testify, it will take 13 to years. And there's a 15 few things that happened after this. That's my prepared statements, but there was a few questions asked I would like to address. I went on board in 1976. The fund, the total assets of the fund in 1976, was $360 million. Here we are 32 years later, 31 years later. It's worth 4 billion 8 hundred million. When the infusions of money in '99 from the Pension Adjustment Fund, the top monies 54 2/27/07 - LABOR - BILL 060828, ETC. that we had in the Board of Pensions and Retirement was billion hundred million dollars, and we were 76 percent funded. Right now with 4 billion 3 we're only 53 percent funded. So what we, the City unions, are asking this august body is to give us some relief to our retirees. Now, another question was asked, how did we get in this predicament?
Well, up until 1982 -- and Joe Herkness is here now, who became the Chief -- he was the Chief of the Board of Pensions and Retirement. So with the $360 million, we grew this fund pretty well. So up until 1982, in 1982, this Board of Pensions had no investments in equity. They used to cut bonds out, four percent, two percent. And what happened? They're losing money all the time. There were two court cases, one by a man by the name of Debroski and a firefighter by the name of Seral Bogan 55 2/27/07 - LABOR - BILL 060828, ETC. (ph), that made this court over 40 years in Debroski give extra monies to the Board of Pensions and Retirement. With the Seral Bogan, it was over years. 6 They have been repaid. 7 Now, you heard the Chief 8 Investment Officer testify about the fact 9 that doing the MMO -- and by law, they 10 can, but before that, from '93, '94 up 11 until the year 2002, they were giving a 12 hot percent of what our actuary said. 6. Now, this is in 15 compliance with the law, but it's an 16 awful lot of difference of money. 17 And, number two, someone on 18 this panel said to the fact that the 19 years 2001, 2002. Everybody who was in 20 the stock market lost money. Well, the Commonwealth of Pennsylvania enacted a law that gave you the right to write off those two years. I may be using the wrong word, but you got an adjustment for those two years. So it helped. By the 56 2/27/07 - LABOR - BILL 060828, ETC. City of Philadelphia taking advantage of it, it reduced their payments between $13 and $16 million over the lifetime of that benefit. It gave them time to reorganize and make the mortgage longer. So there's a lot of things that happened where we are today. We had -- well, Carol is going to mention when we bailed the City out in 1991 or 1992 when this city was going bankrupt. But Carol is going to address that. So that's all I have at this point, but I ask your support in granting this Pension Adjustment Fund bill. Thank you very much.
Thank you for your testimony. Any questions from this Committee to our panel? (No response.)
Seeing none, thank you so much for your time this morning. MR. McBRIDE: Thank you very 57 2/27/07 - LABOR - BILL 060828, ETC. much.
Rob Dubow, Executive Director of PICA. Councilman Kenney.
Thank you, Mr. Chairman. I have to leave the Chamber for a period of time. In my absence if the vote is taken, I'd like to be recorded as voting aye on both bills and any rules suspension requests. Thank you.
Thank you. Councilman Brian O'Neill has joined us. Welcome.
If I could, while we still have some positive testimony around. Mr. Dubow is coming in. I want to stay positive as long as possible. I was here, as I know Councilman DiCicco and Councilman Kenney were, when we did the original legislation, and my dad just missed -- he was a 36-year pensioner from the Police 58 2/27/07 - LABOR - BILL 060828, ETC. Department and he died right before the two years. And I'm sure it's his biggest regret, if he had been alive, was that he wasn't around for it, because that's all he talked about. He was a minimum pensioner. I had gotten so many calls from people in the audience and others that I wanted to come to the hearing even though I wasn't on the Committee to express my support.
Good morning, Councilman Ramos and members of the Committee. My name is Rob Dubow. I'm the Executive Director of the Pennsylvania Intergovernmental Cooperation Authority. I'm here to testify in opposition to Bill No. 060828, which would eliminate the requirement that the Pension Fund be approximately 77 59 2/27/07 - LABOR - BILL 060828, ETC. percent funded before payments are made to the Pension Adjustment Fund. PICA issued a report on the City's Pension Fund last year and has written about the fund's challenges in many of its reports. Rather than repeating those descriptions, I will attach our report to the testimony. I will, however, provide a brief discussion of what the bill is intended to do, the condition of the Pension Fund and the reasons PICA believes the bill should not become law. The bill's desire to help increase payments to pensioners is understandable. Unfortunately, the Pension Fund is not in a position to assume the extra burden the bill would create. There was a rationale for the requirement that the Pension Fund be able to meet a certain percent of its liabilities before payments are made to the Pension Adjustment Fund. It simply doesn't make sense to impose new 60 2/27/07 - LABOR - BILL 060828, ETC. liabilities on a fund that only has assets to meet about half of its current liabilities. The City's last actuarial report shows that the percent of the City's pension liabilities that are funded is only 53 percent, down from close to 80 percent as recently as the beginning of this Administration. At the same time, the amount that the City's General Fund must pay into the Pension Fund has more than doubled, from under 200 million to well over 400 million. That increase of over 200 million means that that money, which could have gone to services such as improving public safety, is not available to the General Fund. The situation is not expected to improve, as the recently released proposed Five-Year Plan shows payments of almost $480 million by 2012. This bill 23 would likely lead to an increased liability and an increase in the minimum payment due to the Pension Fund. 61 2/27/07 - LABOR - BILL 060828, ETC. As the increase in General Fund contributions to the Pension Fund shows, the City's taxpayers are assuming the burden of increasing the weakness of the Pension Fund. This bill would increase that burden. With the dramatic decrease in its ability to meet its obligations and the equally dramatic increase in required General Fund contributions, the Pension Fund is like a sick patient. Rather than providing any cure for the fund's disease, this bill would only make the fund sicker. That concludes my testimony. I'd be happy to answer any questions.
When was the 62 2/27/07 - LABOR - BILL 060828, ETC. shift to the MMO?
It was one of a number of options that the Finance Department, Budget Department when I was there, put on the table as potential ways to close what was an enormous gap in General Fund projections.
That you move to the MMO and that you move to what 63 2/27/07 - LABOR - BILL 060828, ETC. specifically? What was the specific funding level that you move to at that point?
That the City pay its minimum municipal obligation under state law, and that change reduced the City's payment to the Pension Fund by probably about $50 million a year, and the reason that change was made was that the other option was making more dramatic reductions in the City's General Fund budget, so cutting the amount that was appropriated for City departments.
That was the deal with the economic downturn at the time, the deal with the negative fund balance around that period. Since that time, times have changed. What has changed about the MMO and the use of the MMO?
The question is, to what extent has the City shifted 64 2/27/07 - LABOR - BILL 060828, ETC. its policy since that time, since there was a turnaround?
The City continues to pay the MMO. It hasn't changed that policy.
I'm not in the Administration anymore, so I don't know what their rationale is. I assume it's because they don't want to make -- I really don't have anything to do with that decision now, but --
While you don't have anything to do with that decision right now, are you saying you don't know why?
Well, no. I was about to tell you why I assume they're doing it, which is that a shift back from the MMO to paying under the City's funding policy would mean an increase in the contribution to the Pension Fund of tens of millions of dollars, which would 65 2/27/07 - LABOR - BILL 060828, ETC. mean that the plan that you just got that has a $46 million fund balance at the end of 2012 would be out of balance by probably hundreds of millions of dollars and that it would have required changes to the funding for almost all of the departments or increases in taxes. So I would guess that's why they don't make the change.
It was positive -- I don't have the exact number. It's been positive every year since then. Last year it ended at about 250 million. 66 2/27/07 - LABOR - BILL 060828, ETC.
I understand that you're saying that the fund balance is going to again five years out return at 46 million and that a few years back we had a negative fund balance, but in between that time, I still don't understand your rationale for why you believe the City has been putting in the minimum.
Well, because what the City looks at -- the City has to have a balanced five-year plan. It can't look at just one year at a time. So when the City --
So did the City anticipate a quarter of a billion dollar fund balance?
Should the City anticipate a quarter billion dollar fund balance going forward?
No. The City now is in a position where it assumes that 67 2/27/07 - LABOR - BILL 060828, ETC. it's going to have $46 million in a plan that also assumes it's going to get $90 million from the state that's not in the state budget.
My question is this, is, you're suggesting that the decisions that were made as the fund balance was improving was based upon a five-year financial plan. I'm saying within those five-year financial plans that were done while you were still Budget Director, did the City assume that there were going to be positive fund balances that would eventually total over a quarter of a billion dollars?
The City assumed positive fund balances but not as large as $250 million. There were things we didn't project, such as the real estate transfer tax quadrupling in seven years. So, no, we didn't --
So is it true or not true that over those years the City could have contributed more than 68 2/27/07 - LABOR - BILL 060828, ETC. the minimum?
The City could have contributed more than the minimum over those years, yes, it could have.
In your last sentence -- and we understand, as Councilman Kenney very well stated earlier in the hearing, that we have an obligation on this side as well to deal with the impact of this service that I think is very much needed to our municipal employees, firefighters and all the other municipal employees, firemen, policemen and our other municipal employees, but here you refer to the Pension Fund as a sick patient. So we're trying to reconcile here your description of the fund as a sick patient with some of the people in the audience having health issues. Those are the real sick 69 2/27/07 - LABOR - BILL 060828, ETC. patients that we have to look out for, the families of these men and women who have given their lives for public service. So we have to find a way to reconcile this where we don't worry about your metaphor of the fund as being a sick patient with people that are actually sick and can't afford to pay for their medical bills because their Pension Fund has not increased, it is not up to COLA standards. So we have to find a way to reconcile this, because we cannot just say we cannot do it and just neglect the reality of the people that have come here this morning.
I completely understand and I understand it's a very real issue. I guess my problem with the bill is that it comes at a time when the Pension Fund is in trouble and it doesn't in any way address that.
Do you have 70 2/27/07 - LABOR - BILL 060828, ETC. any ideas?
Yes. I mean, there are a whole number -- well, most actually what we talked about in our report was really things you could do with new employees. We didn't really talk about changing the benefit for existing employees or retirees in any way, but there are a series of recommendations in there.
Thank you, Mr. Chairman. I guess the question that Councilman Ramos has asked is the same question I asked Mr. Jannetti. At what point do you believe that we could offer a COLA to these retirees in terms of your 71 2/27/07 - LABOR - BILL 060828, ETC. financial projections?
Right. And a lot of that depends on what earnings the fund actually receives. The answer you got before, the to years, assumed that 7 you would continue at eight and 8 three-quarters, and if you continue at 9 eight and three-quarters, there's not 10 going to be any contribution to the 11 Pension Adjustment Fund anyway. It 12 really depends on how much in excess of 13 the eight and three-quarters you wind up 14 getting. That's really what it comes 15 down to, and I don't have those numbers.
I understand that, Mr. Dubow. My question was at what point do you believe we could offer a COLA, in your estimation.
If your investment returns keep in excess of eight and three-quarters, say they were a percent or two above, I think you could probably -- and I'm just guessing -- cut that time in half. 72 2/27/07 - LABOR - BILL 060828, ETC.