NEWS RELEASE
For Immediate Release
Contact: Steve Halvonik 717 787-1381

Auditor General Jack Wagner Recovers $176,000 For Hazleton Police and Firefighter Pensions

City drops appeal of 2006 audit finding

HARRISBURG, Pa., Dec. 21, 2009 – Auditor General Jack Wagner today released the following statement regarding the resolution of litigation between the Department of the Auditor General and the City of Hazleton and the city’s aggregate pension fund, City of Hazleton et al. v. Department of the Auditor General, No. 1220 CD 2009, (Pa. Commonwealth Court). Wagner’s statement is preceded by a summary of the case.

On Aug. 3, 2006, the department issued a compliance audit report regarding the pension fund for the period of Jan. 1, 2003 to Dec. 31, 2004. The report determined that state law does not permit the use of proceeds from a special municipal pension tax to fund post-retirement health care benefits for retired police officers and firefighters or to buy back unused vacation and sick leave from employees who accepted an early retirement incentive. The report recommended that the city discontinue the practice and either reimburse the pension tax account for the $1,593,122 in tax proceeds that were improperly used or deposit that amount into an eligible pension plan with interest.

The city challenged the audit finding regarding the post-retirement health care benefits, which constituted the bulk of the tax proceeds at issue. The department’s finding and recommendations were upheld in an administrative adjudication on May 27, 2009. The city appealed to the Commonwealth Court of Pennsylvania, where the case had been pending.

On Sept. 18, 2009, Gov. Rendell signed House Bill 1828 into law as Act 44 of 2009. The legislation effectively prohibits the use of special municipal pension tax proceeds for post-retirement health care benefits as of Jan. 1, 2010. In passing this legislation, the General Assembly intended to relieve the city of its obligation to repay the cost of the improper post-retirement health care benefits, while preventing such expenditures in the future.

The city never challenged the part of the audit finding regarding leave buybacks. In an agreement signed by the parties on Dec. 17, 2009, the city agreed to discontinue its court case and repay $176,648 into its police and firefighters pension plans by making monthly payments for the next four years. Upon receipt of confirmation that the city has deposited the first payment, the department will provide the city with its annual state pension aid allocation from the commonwealth. The payment of future annual state aid allocations will depend on the city’s compliance with the repayment schedule.

Auditor General Wagner’s statement follows:

We are pleased that the city has agreed to drop its appeal of our audit finding and that it will deposit into its pension funds the amount of special municipal tax proceeds improperly used for leave buy-backs for retired employees. We continue to believe strongly that the city also improperly used the tax proceeds for post-retirement health care benefits, and we commend the General Assembly for effectively prohibiting such misuse in the future. Our audit and the defense of our position led to this important new law, which will assure taxpayers across the commonwealth that their hard-earned tax dollars are being used as intended.

I want to thank the people of Hazleton for their support during this entire matter. As a former first responder myself, I also want to express my great appreciation and admiration for the city police officers and firefighters whose benefits were, unfortunately, the subject of this case. I look forward to working with all of you in the years ahead.

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 approximately 5,000 audits per 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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