At a special Tuesday evening meeting on July 14, the Lancaster City Council Finance Committee reviewed the City’s 2008 audit report. The document showed a dim financial picture for the City Government in the midst the current recession. With a sharp increase in mandatory liabilities, the City’s unrestricted net assets fell to -$1.2 million.
Showing a $600,000 shortfall in budgeted revenues, the City’s 2008 audit report was also impacted by the introduction of “Governmental Accounting Standards Board Statement 45” (GASB 45), which can require government employers to report future retirement expenses (not including pension payments) as liabilities. In accordance with GASB 45, the City calculated the annual amount that would have to be set aside to cover the eventual cost of such employee benefits. For Lancaster City, that would have to be $12 million, annually deposited to a trust account. Since the City cannot presently afford to do without that $12 million, GASB 45 translates this into a liability. Total reported liabilities have increased by $8.7 million for 2008.
According to City Administrator Patrick Hopkins, most other cities in Pennsylvania are also in the negative for the same reason. And it is not just the cities, Hopkins maintained, but “State governments all over the country are dealing with this very issue.” “The State’s obligation is in the billions of dollars,” Hopkins said.
But GASB reporting protocol was not the only thing hurting the City’s assets in 2008. Pension trust funds depreciated by 21%, which means that the City’s direct annual contribution may have to increase by as much as $2 million dollars in 2011. Hopkins explained this equation is simple terms: “Your required contribution to your plan is determined by prior market values. So, when you’re determination comes up for this coming year, it’s going to be looking at those huge decreases. So everybody’s obligations to contribute are going to be skyrocketing.”
Mayor Rick Gray, also in attendance at Tuesday’s meeting, did not mince words regarding the severity of the City’s financial challenges: “The situation we find ourselves in right now is pretty similar to General Motors….It’s pretty much the same problem—it’s just a lot of retirement benefits, a lot of health care benefits.” Regarding the approaching increase in pension contributions, Gray asserted that State-level assistance was a necessity: “Harrisburg’s going to have to do something about that. Every city and every municipality is going to get creamed in this State.”
