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Altoona ‘financially fragile’

City still faces challenge of being impoverished rust belt city

There doesn’t seem to be any question that Altoona’s fiscal condition is better than it was before it spent five years in the state’s Act 47 distressed municipalities program, starting in 2012.

But while 2019 was a moderately good year with the help of a robust overall economy, Altoona remains “financially fragile,” with long-term weaknesses because of high unfunded liabilities, high debt payments and lots of deferred maintenance, according to Manager Ken Decker, in a letter accompanying the 2019 audit.

“Altoona still faces the structural financial challenges of being an impoverished rust belt city with limited tax base and declining population,” Decker wrote. “We have more government than we can afford,” he said at a recent City Council meeting.

Liability

The unfunded liability — a shortfall in set-aside money — for the city’s three pension plans totals $27.4 million, according to Decker.

It’s not only a large amount, but it is seriously understated, because the assumed rate of return on investments for all three pension plans — police, fire and non-uniformed worker — is 7.25 percent, which is over-optimistic, he wrote.

The actual return has been 5.3 percent during the past 23 years, he wrote.

Lowering the assumed rate of return by just 1 percentage point would increase the unfunded liability by 53 percent, to $42 million, according to Decker. That in turn would increase the Minimum Municipal Obligation that the city would be required to pay into the plans each year, according to Decker.

Even though it has not been keeping up with plan payments, the city nevertheless dedicates 17.5 percent of its revenues to the pensions — almost four times the national average for state and local governments of 4.7 percent, according to Decker.

The city has an additional $31.3 million in unfunded liabilities for health care insurance for retired public safety employees, which comes under the heading “Other Post-Employment Benefits” or OPEB, according to Decker.

There’s nothing set aside for this obligation, and the city handles it “on a ‘pay-as-we-go’ basis,” Decker wrote.

Thus the city’s unfunded liability for the pensions and the OPEB totals $58.8 million — or $73.3 million, if the assumed return on the pension investments is reduced by a percentage point, according to information in the letter.

Debt

The city’s debt payment or debt service is expected to rise to 12 percent of net operating expenses next year — 2 percentage points higher than what most municipalities prefer and 4 percentage points higher than the typical target, according to Decker.

That has helped earn Altoona an A rating from S&P Global — which sounds better than it is: it’s five steps lower than AAA, although it’s four steps above “junk,” according to Decker.

“Essentially, it’s the lower part of the middle,” he wrote.

It’s largely the result of the city having had to borrow money not only for major capital projects, but also for equipment like desktop computers, which are not as long lived or expensive as the preferred capital expense threshold of $10,000 and five-years’ useful life, according to Decker.

Those smaller purchases are “technically allowable, (but) not a good fiscal practice,” he wrote.

Among reasons the city resorted to such practices was the county’s long delay of reassessment, according to Decker.

The unfunded liabilities and debt together total more than $100 million, he wrote.

Deferred maintenance

There is a problem with deferred maintenance, but its extent and the amount that will be needed to cure it isn’t known, according to Decker. The problem surely exists, “given the city’s long history of financial distress and relatively recent emergence from Act 47,” he wrote.

He hopes to get a handle on the problem.

Altoona’s economic hardship has lasted almost a century, according to Decker.

“Once a city of over 80,000 residents, it has shrunk to fewer than 45,000,” he wrote. Since that time there have been “recurrent shocks to major industries,” but recently, signs of rebirth downtown, he wrote.

It indicates that despite management reservations about Altoona’s financial state, “there are no questions about the grit and determination of the community,” he wrote.

Mirror Staff Writer William Kibler is at 949-7038.

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