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Friday, March 14, 2014

Mayor Nutter and PGW

The Local Lens
Published • Wed, Mar 12, 2014
By Thom Nickels

When Michael Nutter first became mayor in 2007, I was lukewarm in my support for him. The progressive maverick seemed to have all the "right" positions on issues; he was articulate, polished, professional, although perhaps too much so. Can a politician be so polished that he/she comes across as slick, as in, I smell a con job in there somewhere? In 2007 I even had a Republican Tea Party friend who volunteered for the Nutter campaign. "Joyce" felt that Nutter would help improve life in the City of Philadelphia.

Dreams (and illusions) die hard. Fast forward seven years and "Joyce" is hardly a Nutter fan at all, but in fact has moved out of the city to the relative quiet of New Jersey. As for me, I could never understand the excitement and support that Nutter received from political progressives. Liberals everywhere seemed to put him on a pedestal. For me it was always a case of when the "real" Michael Nutter would surface.

For me, that happened when the mayor announced his proposal to sell the Philadelphia Gas Works to a private corporation in Connecticut, the UIL Holding Corporation, for 1.86 billion dollars.

What a bombshell. The New Deal style political grassroots Democrat had become an urban version of Governor Tom Corbett. Welcome to a Philly nightmare.

I say this because I wonder if most Philadelphians know just how bad an idea like this is. The media, namely broadcast news, has had an almost indifferent reaction to the impending sale, choosing instead to headline stories of North Philadelphia crime, or home invasions in the Northeast as ‘breaking news," while giving minor play to the PGW story. But the fact is, if the mayor’s proposal materializes, the city will be giving up—forever--its 178-year ownership of PGW. Why is this important? It’s important because PGW continues to be a not for profit public utility company, not for profit meaning that PGW’s profit margin has more to do with covering operating expenses rather than the accumulation of major wealth.

The mayor says the city needs to sell off PGW (for 1.86 billion dollars) in order to rescue "the city’s ailing pension fund." He adds that the sale of PGW would inject 424 million into the city’s pension fund, a fund that affects only a miniscule percentage of Philadelphians, while the vast majority of Philadelphians have no connection to the fund because they do not work for the city. This tells us that PGW is good for Philly because, as a non profit public utility, it benefits the entire city with gas rates that, although still high, would be three times as high if a private corporation like HIL (which exists only to maximize shareholder value) gains control of PGW.

Look at it this way. Pension funds all over the country are dying out or being drastically reduced. In some cases, such as in Detroit, city pension funds have been radically cut. Philadelphia’s pension fund is, by comparison to other cities, extremely generous. There have been no cuts, although according to the mayor there is an 8 billion dollar pension fund deficit.

But why should any public employee, whose salary is 100% taxpayer funded, ever collect $400,000 on day one of their retirement plan (the DROP program) and then turn around and collect over $100K or even $50K per year in pension?

The mayor’s pro-sale PGW friends insist that $50K per year in pension payments isn’t really all that high. Well, let’s compare that to maximum Social Security benefits at $2,600 per month (and it is almost impossible to qualify for this). When you spread that $50K city pension per year over 12 months it comes to $4,166 per month. Even the so called "cheap" city pension is about $1,600 per month higher than the maximum social security possible. City pensions kick in after 25 years on the job (you start working at age 25 and collect at 50), whereas maximum Social Security requires 47 years in the system so that you can collect it at age 67. What this all means is simple: The current pension system is in fact, outrageous.

For starters, an annual pension of $50K is huge. Most people in fact do not make that amount annually when they are working, let alone in retirement. And the vast majority of people, who are not city workers, do not even have a pension. The Philly system is bloated, mismanaged, and broken.

Politicians, city workers—sans police and firefighters—and the mayor are the only ones who would benefit from the sale of PGW to UIL. How could this group not be happy that they are the only ones who stand to benefit from the sale of PGW? If the sale of PGW happens, they will keep their high pensions, while the rest of the city—the overwhelming majority of Philadelphians —will be subject to the whims of HIL.

The mayor and his "for sale" cronies want to appease the public with promises that UIL will not raise gas rates for customers for 3 years after the sale, and that UIL will keep discount programs for low income seniors and others. An additional promise was made that old PGW employee retiree pensions will be respected.

But three years is a very short time, and when that flash in the pan is up, if you think that UIL, a "for profit" company will behave in the low rate increase and caring customer manner that PGW has been adhering to for 178 years, then you are just naïve. As a smart public relations gimmick, UIH’s first rate increase after 3 years will of course be very small, because they will not want to arouse customer antipathy, but very soon after that, the scenario will change. Next will see moderate increases, and then UIH will do what all private corporations do: accelerate the motion and go in for the big money.

Within ten years or less, gas rates under UIL will be through the roof. In the meantime, the temporary fix that Nutter made back in 2014 to fund the "ailing pension plan" will be history, and not only that, but the "for sale" money, 1.86 billion will be all used up. The brash of new city pension funds, if pension funds are even still around then, will go hurting because of continued city mismanagement. But the lasting legacy of all this will be the fact that PGW will be gone forever. There will only be HIL, a for profit corporation.

Philly is a poor city, one of the poorest in the nation. With very cold winters in our future (friends of mine pay as much as $200 a month for gas heat), future gas rates under UIH may very well spell disaster for most city residents. Will a private corporation be as benevolent or as generous as PGW when people are late or don’t pay their bills? Can a "for profit" company ever be as "benevolent" as a not for profit company?

Can you name one large private corporation that has ever put people before profits?

While it is true that City Council has been at odds with the mayor over many issues, this issue—the sale of PGW—is different because City Council members stand to benefit from this attempt to rescue the ailing fund.

Will City Council members vote for their own self interest and support the mayor, or will they think about the vast majority of Philadelphians who are not city workers, and who generally have no pension plan whatsoever?

Most importantly, why should the entire city suffer just because the mayor wants to rescue the "ailing pension fund" for a special few?