County should restore full payments to pension fund
Amplify the advisory from Butler County Controller Ben Holland to ramp up the county’s pension fund payments.
For the past seven years, state Act 44 has given Pennsylvania counties and municipalities the option to contribute less money than normally required for public pension obligations. Enacted at the depth of the Great Recession, the law provided short-term fiscal relief in the aftermath of the 2008 economic downturn.
It might have made sense for the county to take advantage of Act 44 in 2010 or 2011, but not as much sense in subsequent years as economic conditions slowly improved — and unfunded pension obligations grew steadily for the county while they ballooned by billions of dollars statewide.
Holland is correct in stressing that the practice needs to end, now. By his calculations, the county has contributed $4 million less than it should have between 2010 and 2015. Consequently, the county’s pension obligation appears to be 88 percent funded under Act 44 but it’s actually closer to 82 percent funded.
Any way you calculate it, the pension obligation must be covered. An unfunded obligation is the same as a debt — it might not come due today, but it will come due. “All we’re doing is delaying the inevitable,” Holland said, and he’s dead-on.
There might have been some wiggle room six years ago to delay payments and use the money for other expenses, including construction of the Government Center Annex for human services in 2015. In December of that year, Holland said the construction of the $12-million, 57,600-square-foot annex helped deplete cash reserves.
“If the county commissioners had not constructed the new human services building, the county would arguably be in fantastic shape because they would be sitting on more than $10 million in reserves,” Holland said at a Dec. 7, 2015, commissioners meeting.
An entire floor of the three-story annex remains unfinished and unoccupied. But that’s an editorial topic for another day.
Holland’s latest warning coincides with a banner event: The Dow Jones industrial average on Wednesday hit a record 20,000 points, reflective of a bull market fueled by President Donald Trump’s pledge to restore American supremacy in the global marketplace.
A resurgent market will soon boost interest rates that have languished for nearly a decade. In the financial realm, a rising interest rate increases the size of the debts along with the cost of the money to repay them; conversely, invested money will earn income and compound at faster rates — as long as there’s money invested.
Both conditions should amplify Holland’s advisory. Now is a crucial time to get money invested in the public pension fund and earning interest; now is not the time to be paying ever-higher rates of interest on money owed to the fund.
The commissioners would do well to acknowledge the advice of their controller. They should abandon the Act 44 adjustment and revert to full payments.
Specifically, Holland says the county should increase its pension fund contribution this year by $1.5 million to reach $7 million instead of the $6.3 million set by the Act 44 method.
Of course, that means making sacrifices, some of which won’t foster popularity for the first-term commissioners. That’s $1.5 million not spent on improvements or services that can be seen, felt or appreciated sooner or closer to home. It feels a little like throwing cash away.
Unfortunately, it’s a payment that must be made, and the sooner it’s made the less painful the experience will be.
