Ed Rendell: If Philadelphia Can’t Afford DROP (It Can’t), Then It Has To Go (But It Won’t)
City Council yesterday debated whether the city’s deferred retirement option plan, known as DROP, should be eliminated or modified. They, of course, chose in the best interest of themselves and passed a bill that would have it modified.
Philadelphia’s Fraternal Order of Police President John McNesby says that “DROP works, and works well” and costs nothing from Philadelphia’s police officers.
GOP mayoral candidate Karen Brown also testified, saying elected officials should have never dipped their greedy hands in it—which is exactly what former Gov. Rendell told PW yesterday outside of the Liberty Bell Center.
“If we can afford it, I’d like to see it stay because I think it has some value. But if we can’t afford it, it’s like everything else, and has to go—and should be gone,” he says.
As the city’s current pension remains 47 percent funded, Philadelphia Finance Director Rob Dubow says the city cannot afford it.
“Both studies came to the conclusion that DROP still has a cost to the city of at least $100 million,” he says. And it could cost the city even more if city employees rush to enter DROP before its modification is imposed, which would further weaken the city’s pension fund.
But DROP is not a “bonus” to employees’ pensions, because it is their pension. The lump-sum payment that city employees may receive would be the same amount if they entered a typical monthly-paid pension plan.
The trouble is that DROP encourages employees to retire earlier than they would have, and that, along with its fixed 4 percent interest rate, is what costs the city money.
The new bill would delay eligibility for DROP by two years, replace the fixed interest rate to U.S. Treasury rates and add a new partial-lump-sum benefit. That’s what passed yesterday, despite that six of the Council members who voted for the new bill will not be returning to City Hall next year after the public spoke and voted them out of office during last month’s primaries.
The total vote was 15-2 in favor of amending it, however, the DROP saga may not yet be finished. Police and fire unions claim they use the extra money they accrue in DROP’s four-year interest-bearing account to pay for health care and “not to get rich.” They may sue the city because the new bill substantially reduces the interest rate.