Philly One Step Closer to Sales Tax Hike and Pension Overhaul

A Senate panel has unanimously endorsed a bill to reform Pennsylvania's municipal pension laws and allow the state's largest city to increase taxes to help fix its ailing retirement system.

An amendment the Senate Finance Committee approved Monday night would overhaul the pension law, setting new financial standards for the thousands of municipal funds in the state and providing a combination of relief and regulatory intervention for those that run into trouble.

The amendment, which could go to the floor for a full Senate vote as early as Wednesday, also would allow Philadelphia to raise its sales tax to eight percent from seven percent for five years. The tax hike would raise an estimated $580 million that would be used to pay off pension contributions that the city has deferred.

The House has approved legislation that includes a different set of pension reforms as well as the Philadelphia tax authorization. Both chambers would have to approve identical legislation before any reforms could take effect.

Nutter, who has said the tax increase is necessary to avert the layoffs of thousands of Philadelphia city employees in a matter of
weeks, attended Monday's committee meeting and was circumspect after the vote.

"This is one step closer" to passing the bill, Nutter said, noting that he had not reviewed the final version of the Senate amendment.

The worst-case scenario would be "an unending series of actions" by the two chambers, Nutter said. Under the amendment, Philadelphia would have to freeze pension benefits for current employees and adopt revised benefits for new employees that cost no more than 75-percent of the existing plan.

Sen. Patrick Browne, the committee chairman and main sponsor of the amendment, said 40 percent of Philadelphia's payroll goes into pension contributions in contrast with 4 percent for state government.

"They're paying an enormous amount of the city resources to pay their pension costs, and we need to recognize that and do something about that," the Lehigh County Republican said.

The amendment also would bar elected officials from participating in plans that allow employees eligible to retire to
pick a retirement date four years in the future, then amass pension payments at a 4.5 percent interest while continuing to work and
collect their salaries.