Capitol recap: Proposed municipal pensions fix would allow skipping public bids

The exemption would apply to 98 percent of Pennsylvania’s municipal retirement systems.

Susquehanna Township’s figured out a way to save $40,000 a year, every year.

Without compromising anything for residents, or firing anyone.

But to public officials in the 25,000 person community, getting there was almost not worth the trouble.

The $40,000 savings was reached through hiring a new investment manager for the township pension funds. In Pennsylvania, municipalities have to follow a very specific process to do that. The goal is transparency and protection. But the execution, critics say, overwhelms some officials and seems to discourage some financial professionals from doing business with them.

So there’s a push to get rid of the public bidding rules through a bill (House Bill 414) – that, opponents say, goes too far and is “not good  public policy.” (words of State Sen. John Blake, D-Lackawanna)

“How to make it a little easier? I don’t know. Is there a medium ground between doing nothing and overdoing it?” says Susquehanna Township Manager Gary Myers. “You want to have protections, but don’t want to go to the point of the absurd.”

Case study in complexity

The protections entail requiring a lot of information from applicants up front about potential conflicts of interest, their investment strategy, etc. And using a scoring matrix to evaluate them. That’s been the law for six years, through Act 44 of 2009.

Doing this apparently is cumbersome, even for someone as seasoned as Myers, who’s three decades into his local government career. Or Tony Salamone, a resident on the pension board who’s retired from heading the Public Employee Reitrement Commission.

“It took us eight or nine months,” Myers says.

Myers says the township had used the same investment advisor for 35 years when they decided to rebid the job in 2013. Writing the ad wasn’t the hard part. It was sifting through the 40 “voluminous” offers that came back.

“Nothing to do with Act 44,” he says. “We needed to do it anyway.” (And, in fact, the law doesn’t require municipalities to bid contracts at any certain interval – just prescribes the process whenever they do it).

“I agree [there] needs to be transparency. There should be a process, but maybe not as difficult as this. This one is very time-consuming,” Myers says.

On the balance, it was worth it, he says. The township’s saving between $35,000 and $40,000 per year on costs to manage its pension funds, about $19 million combined (police and non-uniform).

Myers also doubts it will be as time-consuming whenever they do it again. Still, he thinks there must be a better way.

Proliferate problem?

House Bill 414 suggests doing away completely with the bidding requirements for “small” pension funds, which it defines as those with fewer than 100 active (no yet retired) members.

That’s 98 percent of municipal pension plans reporting each year to the Public Employee Retirement Commission. Those funds hold nearly half the collective assets of the state’s municipal pension plans, and are supported by 40 percent of public employees statewide who are vested but not yet retired, according to an analysis of PERC data.

It’s worth noting those plans are collectively funded at nearly 84 percent, versus 53 percent of the larger ones (which rises to nearly 75 percent when Philadelphia’s discounted), the analysis shows.

The list includes many tiny communities, but also some of the commonwealth’s more populous ones like Wilkes-Barre (41,000 residents), Chester (34,000), Carlisle (18,800) and Altoona (46,150).

It’s unclear how many, exactly, might have struggled to comply because bill sponsor Tim Briggs, D-Montgomery, couldn’t provide an example of one. Nor could supporters or legislators who’ve voted on the measure.

The Pennsylvania Municipal League’s member cities haven’t relayed concerns to Executive Director Rick Schuettler, but he provided the organization’s guide and template RFP meant to clarify any confusion over the law.

It’s 24 pages, marked with spots to fill in dates and a municipality’s name. It also lists about 50 questions and disclosure items — conflicts of interest, fees rationale, investment strategy, manager selection process, etc. — for applicants.

Pennsylvania State Association of Township Supervisors (PSATS) Executive Director Elam Herr acknowledges professionals typically answer those questions anyway as part of the selection process, but that some requests from proposals have gone unanswered since the law took effect.

(Herr also says PSATS, which is supporting the bill, runs a pooled investment fund for about 100 small township pension funds, but that current law doesn’t apply to that type of service).

Without options, some local governments get stuck in contracts with firms they’re unhappy with. Same goes for being intimidated by the process, or incurring the expense of a lawyer for guidance, Briggs says.

Former Pennsylvania Municipal Retirement System Secretary James Allen notes officials who struggle to issue RFP’s without guidance are “most likely the ones who would be taken advantage of by less than scrupulous firms” — which the law is meant to protect against.

Rep. Dan Miller says the same of his vote against the measure when it passed the full House nearly one month ago.

Miller says he and Ed Gainey, both D-Allegheny, felt “uncomfortable” about removing the public bid rule because it would decrease transparency. Miller also says none of his constituent municipalities have complained about the process.

“I’m sensitive to the fact that there [are] other types of townships and municipalities,” Miller said. “But removing the RFP — that would be a high hurdle for me to get over.”

It’s worth noting that House Bill 414 doesn’t do away with public notice completely. It suggests officials announce contract availability at two consecutive public meetings and to post an ad online for at least two weeks before awarding it. At the very least, Briggs says, municipalities wouldn’t have to pay for newspaper advertising.

But the point of the rules now in place isn’t only transparency. It’s also to provide information local officials need to know, but might not think to ask for, before awarding a contract.

What’s next

House Bill 414 hadn’t moved since September, but was revived last week. State Sen. John Eichelberger, R-Blair, amended it to incorporate pieces of two Senate bills that had stalled. Its new provisions institute big changes such as forcing new structures or putting the state in charge of under-funded plans.

Eichelberger says he didn’t know the original bill would let pension plans with fewer than 100 members award financial services contracts without the public bidding process currently required by state law. He also says he didn’t know about any problems with compliance that might warrant the changes.

Blake said last week he’ll push for amendments to HB414, now with the Appropriations Committee. It’s unclear when that will happen and if the RFP issue will be addressed.

Blake says he wasn’t aware of that provision in the original bill and that it’s “not good public policy”, but his opposition last week focused on how little retirees might be paid if the provisions become law.

Gov. Tom Wolf’s spokesman says it’s unlikely local pensions will be addressed before lawmakers reach a compromise over the state budget, although state worker and public school teacher pensions are expected to change.