(The following story by Paul Nussbaum appeared on the Philadelphia Inquirer website on November 17.)
PHILADELPHIA — Tumbling financial markets have hammered the pension-fund investments of SEPTA, forcing it to divert more cash to retirement benefits for its workers.
Coupled with declining revenue from state taxes, the pension-fund losses may force SEPTA to limit plans to expand service and improve stations.
The transit agency will not raise fares next year to cover the losses, officials said. But it may tap its “service stabilization fund,” an off-the-books $130 million surplus set aside for future expenses.
From October 2007 to last month, the value of SEPTA’s pension fund fell from $800 million to $550 million, a drop of 31 percent. And the fund’s value declined further this month, chief financial officer Richard Burnfield said.
“We’ve never seen a drop like this,” Burnfield said. “We don’t know exactly what to expect, but we do know our contributions will have to go up.”
As markets have plummeted, pension-fund losses have hurt other transit agencies, local and state governments, and private companies. Philadelphia’s pension system lost more than $650 million in the first nine months of the year, contributing to the city government’s financial crisis.
“It has certainly thrown a monkey wrench into a lot of plans, and we’re not immune from that,” Burnfield said.
SEPTA contributed $68 million this year to the pension funds that cover its 9,200 workers and 3,900 retirees. The agency’s actuarial consultants will determine by early next year how much more SEPTA must contribute to keep those funds healthy, Burnfield said.
SEPTA paid out about $60 million in pensions last year.
Private companies, facing legal requirements to shore up their funds, have asked Congress to suspend the law so they can use their cash elsewhere.
SEPTA and other public agencies are not bound by the federal Employee Retirement Income Security Act, which sets minimum standards for pension plans in private industry. But SEPTA has to “look at our fiduciary responsibility” and bolster the funds, Burnfield said.
“We don’t want to start underfunding pensions and our other obligations,” he said. “Sooner or later, those chickens come home to roost.”
SEPTA, which is only five months into its budget year, also faces reduced revenue from the state, as sales-tax receipts drop with lower consumer spending. SEPTA gets 4.4 percent of Pennsylvania’s sales tax revenue, which last year amounted to about $400 million.
SEPTA and other transit agencies also face the prospect of less state money because of Pennsylvania’s inability to institute tolls on Interstate 80. That plan was a key part of a transportation funding law, Act 44, the legislature enacted last year. But in September, the Federal Highway Administration rejected Pennsylvania’s application for the tolls.
Without that money, Pennsylvania’s mass-transit agencies stand to get $150 million a year less than anticipated.
SEPTA will scale back planned capital projects, which include station improvements, new vehicles and equipment upgrades. SEPTA officials said they have not determined which projects will be curtailed.
Other transit agencies are also struggling with budget problems, including higher pension costs.
In New York, the Metropolitan Transportation Authority is contemplating higher fares, service reductions and budget cuts.
The Delaware River Port Authority, which operates the PATCO High-Speed Line from South Jersey to Center City, raised bridge tolls and train fares this year and expects to spend more for pension costs next year, said John Hanson, DRPA’s chief financial officer.
This year, DRPA budgeted about $3 million for pension-fund contributions.
DRPA, unlike SEPTA, does not run its own pension system. Most DRPA employees are covered by the Pennsylvania State Employees’ Retirement System or the Teamsters Union pension plan.
DRPA projects that its contribution to the Pennsylvania system will rise to 4.20 percent of covered payroll next year, from 3.29 percent. The contribution rate for the Teamsters pension plan will increase about two percent.