ALLENTOWN, Pa. -

Wednesday, Allentown City Council is expected to vote on whether to support the next step in Mayor Ed Pawlowski's plan to lease the city's water and sewer operations.  WFMZ.com's Randy Kraft takes an in-depth look at the issues and arguments involved with this controversial proposal.

THE PROBLEM

Allentown is running out of money at a time when its multi-million-dollar pension debts are about to dramatically increase.

While the recession, declining revenues and rising health care costs all contributed to Allentown’s looming financial crisis,  Mayor Ed Pawlowski says the biggest problem is “crippling” pension costs because of early retirements by police and firefighters, based on contracts negotiated before he became mayor.

“I lost a third of my police force and I lost almost half the fire department over the last several years,” said the mayor. “We had guys going out at 30, 40, 45 years of age.  I had a guy who was 47 or 48 going out with $90,000 a year for the rest of his life, plus full health care benefits that could be passed onto his surviving spouse.”

Allentown Mayor Ed Pawlowski

He said some of those retirees walked away with pensions that were 130-140 percent of their base pay.

Pawlowski said “this is what I saddled with” when he took office seven years ago.

He said he was the first and only mayor to sue the police over pensions in Pennsylvania. That suit resulted in a settlement. “We got some retirees to actually give back some of their benefits.”

Pawlowski said some pensions contained provisions that violated state law. But he could not change them until it was time to renegotiate contracts with the police and firefighters unions.

In 2008, he renegotiated the contract with the police union.

 “We got rid of all these crazy illegal benefits. All the things that inflated the pensions are gone. We stopped that hemorrhaging.”

This year, pension benefits also were changed for firefighters when that contract was renegotiated. “This was the first year I’ve had a chance to restructure it. We got rid of all those illegal pension benefits. They can’t retire early, they can’t inflate their pension with overtime, they have to be 25 years on the force, they have to be 55 or older,” said Pawlowski.

What he can’t do is go back and eliminate or not pay police or firefighter pensions that are contractual obligations under state law. Pension costs keep growing because more people are taking money out of the system “at dramatically increased rates.”

Because of that, said the mayor, unless there is a dramatic increase in revenue, within three years about 25 percent of the city’s budget will go to pay those pension costs. He argues taxes would have to increase up to 40 percent just to pay those costs.

“Our Minimal Municipal Obligation for our pension fund is going to rise to 25 percent or more of our operating budget in a few short years,” Pawlowski said.  “Unless we ease our pension crisis, our rising MMO will require a massive property tax increase while still not doing anything to bolster our reserves.”

MMO is the minimal amount the city has to pay on its pensions. “It’s like the minimal payment on a credit card,” explained the mayor. “It doesn’t pay off your debt. It does nothing to reduce our unfunded liability.”

The city’s unfunded pension liability now is more than more than $150 million and growing.

This year, he said, the city’s MMO obligation is $15.5 million. Next year, it is $18 million – more than is budgeted for the entire fire department.

By 2015, $23 million -- about 25 percent of the city’s entire general fund budget – will have to be used to pay the MMO.

“We need a dramatic increase in revenue to fill this pension gap,” said the mayor.

 

THE MAYOR'S SOLUTION