Philly pension reforms caught in spat between Mayor, City Council

Philadelphia City Council President Darrell Clarke, left, and Mayor Jim Kenney, center

Philadelphia City Council President Darrell Clarke, left, and Mayor Jim Kenney, center

A fight is brewing over a plan to reform Philadelphia’s troubled pension system.

Mayor Jim Kenney’s administration is taking issue with a tweak made by Council President Darrell Clarke’s office to proposed pension reforms. At odds is a minuscule piece of a larger effort to move all city employees over to so-called “stacked hybrid” retirement plans

The sticking point is whether or not future elected officials, numbering about 25 positions, should be included in that shift or continue to opt between two older retirement plans.

“The City Council bill would not require newly elected officials to go into the stacked hybrid plan.  That is the only remaining substantive issue,” said Kenney spokesperson Mike Dunn. “As a matter of fairness, we think all city employees should be included in the plan.”

In the stacked hybrid system, new employees will receive traditional pensions based on their earnings up to $50,000 a year. Higher-earning employees would be eligible to enroll in a 401(k) plan for the remainder of their salaries over that figure. The mayor claims the larger reform package would add $142 million to the pension fund over the next five years – the city is short about $6 billion on an $11 billion liability.

Asked why council was reluctant to fully sign off on the mayor’s proposed version of pension reform legislation, Dunn referred questions to the “author of the legislation.” The current version of the hybrid pension bill was introduced on Clarke’s behalf. 

But the Council President’s office has argued that higher-earning city employees – like newly elected officials – actually contribute more to the fund under their current pension plans. Kenney’s original proposal also included language that would have significantly expanded the city’s controversial DROP program, which was removed from council’s iteration.

However, both offices noted that the actual savings to be realized by tweaking a few dozen future elected officials’ pensions either way were “actuarially insignificant.” Clarke’s office and the mayor also downplayed any hint of conflict between the two officials.

But while few in City Hall claimed to grasp the wonky technical details at hand, numerous sources said the battle over a few lines of legislative text was likely about bigger issues.

Kenney is reportedly concerned that an exemption for future elected officials will hamstring upcoming union negotiations – the city’s other bargaining units have yet to adopt hybrid pensions in their contracts.

Clarke’s office declined to answer questions about the proposal on the record. But council sources also speculated that Clarke’s divergence with the mayor was tied to other recent issues with the administration – like his anger over the Revenue Department’s sale of city-owned lots earmarked for the Land Bank.

Whatever the true cause, Councilmember Allan Domb – who did not take a stance on the issue at hand – said he was concerned the disagreement could torpedo a plan he believes has the potential to save billions over the years.

“It’s an infinitesimal amount of money,” he said of future elected officials’ pensions. “It should not hold up the larger solution for the pension problem. This is like Ivory soap – we’re 99.5 percent there. Don’t let this affect a great plan.”

In December, the mayor won approval from council to move DC33, the city’s blue-collar union, over to a stacked hybrid pension plan after successfully negotiating a fresh contract in July. With contract negotiations for white-collar DC47, police and fire unions looming, the Kenney administration pushed for preemptive council authorization to shift other city employees over to similar plans.

But Clarke reportedly balked at language in the proposal that would have expanded the DROP retirement perk to over 1,000 nonunion city employees. His office ultimately went with a bill that removed DROP expansion, but also left future elected officials with the option to choose from two older pension plans.

The mayor’s office has since abandoned the DROP provisions, although they declined to say exactly why.

“We wanted exempts and non-reps to have the same structure as DC33, again, out of fairness,” Dunn said, of the original plan. “Council took the DROP part out of the bill and we’ve agreed to leave that out. It is not in the current bill and we're fine with that.”

Clarke’s version of the bill was to be debated in City Council’s Labor & Civil Service Committee two weeks ago. That hearing was ultimately cancelled due to the Council President’s absence.

“The date we chose was in conflict with a scheduled visit to Harrisburg (Clarke) had with his team. So we had to cancel the hearing,” said committee chair Cherelle Parker. “We’ll proceed to reschedule the hearing at the request of the sponsor.”

That hearing has yet to be rescheduled by Clarke, although staffer Matthew Stitt briefed council members and staff on the current bill last week.

Sam Katz, former chairman of the PA Intergovernmental Cooperation Authority, the city’s fiscal watchdog, said the mayor had reason to worry about other unions buying into what amounts to a less generous pension plan. Although Kenney won pension concessions from DC33, the new contract was otherwise favorable, featuring 11.5 percent wage increases over five years.

“In the past, the city has claimed it could not afford anything approximating what the unions wanted,” he said. “Kenney's argument there, with what turned out to be a very favorable DC33 contract, will be much weaker.”

Katz also took issue with statements from Finance Director Rob Dubow on the city’s larger pension reform projections, which will purportedly realize 80 percent funding in 13 years, if enacted. 

However, the city traditionally makes the rosy assumption that the pension fund will realize 7 to 8 percent returns on investments.

“At 7.75 percent, returns are a pretty massive leap of faith,” Katz said. “Do you get 7.75 percent annually on your investments? If so, who is your financial advisor? I'd like to call her.”


In other business from City Council’s Thursday session:

Correction: An earlier version of this story incorrectly stated that the pension reform bill had been introduced to Council's Finance Committee. In fact, it was introduced to the Labor & Civil Service Committee.