Instead of wrestling with another increase in next year’s budget, Luzerne County government will close a $91.8 million employee pension fund shortfall over 18 years instead of 15.
County Manager C. David Pedri urged his county Retirement Board colleagues to unanimously approve the change Wednesday, saying he doesn’t want to continue asking taxpayers to shoulder the burden of increased pension fund subsidies.
Most of the 14 percent in county tax increases imposed since 2012 — 9 percent — covered rising pension contributions, he said.
Under the 15-year plan, next year’s subsidy was estimated to increase from $13 million to $13.6 million and rise to around $14.1 million from 2020 through 2022.
By stretching out the schedule another three years, next year’s payment should be $12.9 million and hover around $13.4 million the following three years, according to a chart prepared by actuary Greg Stump, of Boomershine Consulting Group LLC.
Comparing the scenario to a mortgage, board Chairman Eugene Kelleher, a county councilman, said a shorter repayment window may be more beneficial, but he questioned if a county council majority would be willing to consider a tax hike for an increased pension subsidy.
“That’s the variable we have to deal with here,” Kelleher said.
Using the mortgage example, Pedri said a longer repayment period would make sense if a home buyer also is saddled with credit card debt.
The county is in such a situation due to inherited debt, Pedri said. The county must pay $24.9 million toward debt next year, $26.1 million in 2020 and around $26.1 million annually from 2020 through 2028. The final debt repayment is $11.1 million in 2029, and Pedri said the only new borrowing since the 2012 switch to home rule was $7.9 million for an energy savings project.
Pedri initially had proposed a 20-year pension fund repayment but said he would agree to 18 years to “take the middle road.”
Councilman Chris Perry, Budget/Finance Division Head Brian Swetz and employee representative John Evanchick Jr. also sit on the board.
Investment adviser Richard J. Hazzouri, of Morgan Stanley, told the board he will continue pushing to hit a 7 percent investment return target in the challenging market without exposing the fund to excessive risk.
As of June 30, the fund was valued at $237.3 million, with a year-to-date return of minus 1.09 percent.
The investment mix is currently 38.6 percent bonds, 48.6 percent stocks and 11.3 percent alternative, with the remaining 1.5 percent held as cash.
Morgan Stanley plans to increase investments in hedge funds and other alternative options while decreasing the amount parked in bonds, Hazzouri said.
The county’s pension is currently 73 percent funded. Subsidies at $13 million and higher are projected to linger through 2035, Stump’s report shows.
Shoring up is necessary to close a shortfall that emerged years ago, when investment earnings and employee contributions stopped keeping pace with obligations for future pensions that are guaranteed by law. Two other drivers cited by Stump: People are living longer, and the revenue projected from investments had been unrealistically high.
Reach Jennifer Learn-Andes at 570-991-6388 or on Twitter @TLJenLearnAndes.