A commuter tax enacted by Scranton, Pa., and earmarked for the city’s three retirement plans will raise a projected $5.1 million annually and “chip away” at the city’s $150.2 million in unfunded pension liabilities, according to a Moody’s Public Finance Weekly Credit Outlook report released Friday and confirmed by David Bulzoni, city business administrator.
The Scranton City Council adopted on July 31 the 0.75% tax on non-resident earned income.
The tax is expected to go into effect in October, Mr. Bulzoni said in an interview, noting a date is still being worked out.
“Pennsylvania authorizes distressed cities with poorly financed pension plans to levy a non-resident income tax,” the Moody’s report said.
The Scranton Police Pension Plan, Scranton Firemen’s Pension Plan and the Scranton Non-Uniformed Pension Plan had a combined $44.9 million in assets, based on market value, as of June 30, Mr. Bulzoni said.
On an actuarial basis, the combined plans were 22.5% funded level with $43.7 million in assets, Dan Seymour, analyst in Moody’s public finance group, said in an interview and confirmed by Mr. Bulzoni.
Moody’s estimates the combined pension liabilities could be $258 million, adjusted for its standardized 4.05% assumed return and using a taxable corporate bond index, Mr. Seymour said. Scranton uses an 8% assumed rate.
The city’s required minimum pension contribution this year is $12.1 million, including a 25% reduction allowed by the state since 2009, Mr. Bulzoni said. Funding comes from $9.1 million the city budgeted and $3 million the state finances. The minimum contribution is scheduled to grow to $15.7 million in 2017, when the 25% reduction provision expires, he said.