Pennsylvania’s underfunded public pensions may soon become a nightmare for the Keystone State’s taxpayers, if it hasn’t already gotten there. Based on 2011 data accrued by the Pennsylvania Employee Retirement Commission, 573 of the state’s 1,218 municipalities have underfunded budgets, totaling more than a $6 billion deficit.
In addition, two of the state’s pension plans (involving state employees and public school workers) are underfunded by more than $47 billion.
This obviously puts promised retirement commitments at risk and, if it is not remedied, taxpayers may be forced to foot the bill. Worse, municipalities and cities may have no choice but to file for bankruptcy.
While much of the problems lie in Philadelphia and Pittsburgh, with the two cities accounting for $5 billion of the deficit, areas all over the state are also in trouble, but don’t have the means to raise the type of capital Philly and Pittsburgh can. Because of collective bargaining laws, there are only so much small cities and medium sized boroughs can do to alleviate pension costs. There are 15 cities (like York, Allentown and Scranton) which have over $10 million in underfunded pensions.
If municipality leaders are unable to come up with a plan to make up some of the funding deficits, they will likely have to raise property taxes and possibly even create a pension tax. If that fails, municipalities will have to follow in Detroit’s footsteps into bankruptcy, something no-one wants.
By filing for bankruptcy, municipalities would be off of the hook for a large portion of the pensions owed, meaning thousands of state workers will be getting a largely reduced pension payment. All of those state employees owed pensions (like firefighters, teachers and police officers), would essentially become creditors, with the municipalities becoming debtors.
The trickle-down effect of this could be disastrous. If people who have dedicated a large part of their working life to one job can’t count on the retirement money they’ve been promised, what will that mean for their futures? There could be a lot of Pennsylvania residents filing for bankruptcy within the next 10-20 years if this doesn’t get figured out.
Joel R. Spivack, Esq. has been a successful bankruptcy attorney for more than 20 years. Whether you are an individual or a business owner, if you have been considering bankruptcy or would like to understand the options available to you, contact the Law Office of Joel R. Spivack today for a free consultation. Call 866-488-2196.