Altoona does not need to worry about losing its ability to levy a special earned income surtax to support its employee pensions, should it divert excess reserve money toward the underfunded pension programs, according to a state agency.

During a recent City Council discussion on what to do with the excess, Councilman Bruce Kelley suggested such a move, but Finance Director Omar Strohm cautioned that, if the city pumped too much into its “minimally distressed” plans, the plans could lose that distressed designation — understood to be the initial basis for the city’s eligibility to levy the surtax — thus jeopardizing the revenue stream.

Strohm said he wasn’t sure how close the city could get to fully funding the plans without losing the surtax, which is 0.6 percent for city residents who work in Altoona and 0.4 percent for residents of other municipalities who work in Altoona.

Upon a Mirror inquiry to determine the threshold at which the city would lose the tax, a state Department of Community and Eco­nomic Development spokeswoman stated: “In the circumstance you described, Altoona would not lose eligibility to levy taxes under Act 205 (‘An act mandating actuarial funding standards for all municipal pension systems’). Act 205 does not require a level of pension distress; rather, it states that all money brought in through the tax be used for pension fund payments.”

When asked about what the DCED said on the issue, city officials checked with their labor counsel and were awaiting clarification.

Ultimately, what matters is the applicable law, Strohm said.

The $35 million firefighters’ pension fund and the $34 million police pension fund are in the mid-60s as a percentage of full funding, based on actuarial analysis, according to Strohm and Jesse Ickes, a local financial adviser who spoke to council about the pension plans at a recent meeting.

The $17 million non-uniformed workers’ fund is in the high 80 percent range of being fully funded, according to the officials.

Collectively, those plans are 68 percent funded, according to Strohm.

The city’s projected year-end total reserve — the surplus that council is looking to spend down — is

$10.7 million, 34 percent of this year’s budgeted expenditures of $31.5 million.

That amount is 3.4 times higher than the top end of the 5 to 10 percent reserve recommended by the Government Finance Officers Association.

Kelley said it’s a “crazy argument” to caution against risking the loss of a taxing prerogative based on things getting too comfortable financially.

Regardless, there isn’t anywhere near enough money in the reserve to take care of all pension underfunding, Strohm said.

That total underfunding is about $27 million, based on figures supplied by Strohm and Ickes.

Current plans are to settle on worthwhile projects to spend down about half the reserve, which would still leave about $5.4 million, or 17 percent of the total budget as a surplus.

At the most recent council meeting, Ickes questioned officials about the ancillary costs — administrative expenses plus adviser compensation — for the firefighters’ plan.

Those ancillary costs are 0.58 percent, compared to just 0.27 percent for the police pension, which contains only $1 million less, Ickes said.

It might make sense to float a request for proposals to get a better deal for management of the firefighters’ pension, suggested Ickes, who works for Beck Financial and Wealth Management in Lakemont.

The ancillary costs for the non-uniformed workers’ plan is 0.67 percent — higher than for the firefighters’ plan — but understandable, because the amount in the fund is less than half of what’s in the firefighters’ fund, Ickes said.

The discrepancy in ancillary costs has been discussed, said City Manager Marla Marcinko.

Mayor Matt Pacifico suggested a review, but the city’s investment manager explained the situation “to my satisfaction,” Marcinko said.

Mirror Staff Writer William Kibler is at 949-7038.