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Auditor General Jack Wagner: Many Local Government Pension Plans Set to Receive a Significant Increase in 2011 State Pension Aid
Increased tax collections result in distribution of an additional $132 million of state aid
HARRISBURG, Pa., Oct. 6, 2011 – Auditor General Jack Wagner said today that 87 percent of Pennsylvania’s 1,488 municipalities receiving state aid for their pension plans covering fire, police and non-uniformed personnel will receive a one-time funding increase this year because of the commonwealth’s stepped-up effort to collect a 2-percent tax on out-of-state companies that sold casualty insurance policies to Pennsylvania residents.
Wagner said the state will disburse an additional $132,615,954 in pension aid this year, an increase of 61 percent over a year ago. In total, the Department of Auditor General will disburse $350,526,203 in state aid this year, compared with $217,910,249 in 2010.
Wagner cautioned that this was a one-time windfall and said that not every municipality would receive an additional 61 percent. Each municipality’s total pension allotment is determined by a number of individual factors, such as retirements or workforce reductions in each plan.
With many Pennsylvania communities still grappling with the effects of a weak economy, Wagner said, there may be great temptation to use this additional state revenue to plug budget gaps. However, state law prohibits the use of the funds for any purpose other than to defray municipal pension costs, he said.
“This one-time funding increase is a great opportunity for municipalities to better ensure the long-term financial stability of their pension funds,” Wagner said. “However, I strongly caution against using this additional one-time increase as justification for providing increased pension benefits to plan members or for planning future budgets.”
Because this funding level will not be available in future years, municipalities will not be able to rely on this income stream to pay for enhanced benefits.
The increase in tax collections is due to a more aggressiveapproach by the Pennsylvania Department of Revenue in collecting estimated prepayments of insurance premiums owed by the out-of-state insurance company taxpayers. Essentially, these taxpayers made double payments this year in order to comply with statutory insurance prepayment obligations. Prior to the enhanced tax collection efforts in 2010, these prepayment obligations were only minimally complied with due in part to ambiguity in tax form instructions and taxpayers’ misunderstanding the statutory mandates for making estimated prepayments. It is expected that collections in future years will be consistently lower than in 2011 because of the unique event of collecting approximately 18 months of tax.
On an annual basis, municipalities provide the Pennsylvania Employee Retirement Commission (PERC) the number of employees, payroll, and the actuarial costs of their pension plans. Municipalities also certify this information with the Department of the Auditor General on form AG-385; this data is then used by the Department of the Auditor General to compute the amount of state aid that is due to the municipal pension fund. The amount of state aid disbursed is determined by either an actual pension cost calculation or by a unit value calculation. The lower of the two calculations is used to determine the amount of state aid to be disbursed.
In addition to distributing state aid to Pennsylvania municipal pension plans, Wagner’s department is responsible for auditing 2,642 Pennsylvania local government pension plans, which includes 963 police officers, 81 firefighters, and 1,598 non-uniformed municipal employee pension plans.
A report detailing the amount of state pension aid distributed to each municipality can be obtained on the Department of Auditor General’s website at www.auditorgen.state,pa.us. To access this information, click on the Municipal Pensions link located on the left side of the page and then click the Allocations by County link. In addition, archived calculations from previous years can be obtained from the website; to access, click on the Archived Allocations link which is included within the Allocations by County link.
Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the commonwealth’s elected independent fiscal watchdog, conducting financial audits, performance audits and special investigations. The Department of the Auditor General conducts thousands of audits each year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department’s website at www.auditorgen.state.pa.us.
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