At its June 18 meeting, the Allegheny County Retirement Board received the final recommendations of a panel called the Working Group on Plan Funding and Modernization, which was assembled to advise the board on the deteriorating finances of the county employee pension system.
At this presentation, the Retirement Board was told that the county’s pension system faces a funding crisis. There was, the group stated, a $1.4 billion difference between the assets currently held by the pension fund and the amount needed to cover retirement benefits already promised to county employees and retirees.
This shortfall means that without serious new streams of revenue, the fund will exhaust its assets by 2043. At that point, the pension fund essentially ceases to function, and the county becomes legally obligated to pay these pensions out of its own revenue stream every year.
That amount would total about $183 million annually, in a pay-as-you-go system, with pension benefits paid largely from current revenues. The working group projected that the county’s annual pension obligation could jump by roughly $120 million in a single year, potentially forcing substantial tax increases, cuts to county services or layoffs.
To reverse that trajectory, the group recommended moving to an actuarially determined contribution of roughly $140 million to $150 million annually for the next 20 years, requiring approximately $90 million to $100 million in additional annual funding from the county and Airport Authority.
The Working Group ultimately concluded that Allegheny County cannot solve the pension crisis through investment returns or minor budget adjustments; it needs a new, recurring source of revenue. Its report, shared a few weeks later, recommends that the county pursue one or more “broad-based, stable revenue options” capable of supporting the actuarially determined contribution and legally dedicate that money to the pension until the system is fully funded.
Working with the University of Chicago Center for Municipal Finance, the group evaluated more than 20 potential revenue sources and found only four with a tax base large enough to generate more than $100 million annually: a 0.4 percent countywide sales tax increase, estimated to raise $109 million; a 1.25-mill property tax increase, $103 million; a new 0.2 percent payroll tax on private employers, $101 million; and a new 0.25 percent earned-income tax on wages earned by employees working in the county, $109 million.
Of those four, only the property tax increase could be enacted by the county without authorization from Harrisburg; the other three would require changes to state law. The report does not endorse any one of the four, instead recommending that county officials pursue a broad-based solution that spreads the cost of closing a pension funding gap requiring roughly $90 million to $100 million in additional employer contributions each year.
None of those options are very pretty for politicians, and the working group’s findings seemed to kickstart a peculiar political chain reaction.
In Mid-July, The Allegheny County Council repealed legislation it had approved earlier in the summer that would have asked voters to eliminate that bodies spending limit, to enable councilmembers to hire staff. The referendum was approved and was scheduled to be placed on the ballot in November, but increasing political pressure and a growing awareness of the county’s financial predicament led its backers to backtrack and repeal the referendum.
Interestingly, at that same meeting County Executive Sara Innamorato, who is on the Retirement Board and was present for the Working Group’s presentation, addressed the county council and advised that there would be no tax increases in the 2027 budget.
Something even more interesting occurred the following week. Allegheny District Attorney Stephen Zappala Jr. issued a blistering public letter on the state of the county’s finances, accusing the pension the board of being politically compromised and calling on the state legislature to take over the whole pension system.
Zappala’s central argument was that Allegheny County’s pension crisis was created by more than two decades of deliberate underfunding. The Retirement Board, he said, is dominated by elected officials and political appointees, creating what he sees as an inherent conflict: properly funding the pension would have required substantially more public money, but asking taxpayers for that money could damage political careers.
Rather than making the contributions necessary when employees were earning their benefits, successive boards “kicked the can down the road,” allowing the unfunded liability to compound until it reached roughly $1.4 billion. Zappala argues that poor investment decisions then made the underlying funding problem considerably more dangerous.
Beginning around 2012, the Retirement Board shifted money from publicly traded stocks into real estate partnerships and private equity investments while employing what he describes as a “swarm” of investment managers. By March 2026, roughly $197 million (or about 20 percent of the pension fund’s $990 million in assets) was tied up in illiquid investments, leaving only about $800 million readily available.
Zappala believes those assets could be exhausted in the early 2030’s, substantially sooner than the 2043 depletion date contained in the working group’s report. In his telling, then, the county is confronting the accumulated consequences of decades of insufficient contributions at precisely the moment when the fund itself is rapidly losing the liquid assets that have allowed that underfunding to continue.
Most immediately, Zappala argues that the pension is being consumed by a severe structural cash deficit. The January 2025 actuarial report, he says, showed the fund spending $50 million to $60 million more cash each year than it receives, while annual benefits and expenses are increasing by another $6 million to $7 million and investment income is declining.
Zappala’s criticism went considerably further than a disagreement over pension policy. He argues that the Retirement Board’s handling of the fund represents an abdication of its fiduciary responsibilities, alleging that its politically dominated structure created an “inherent conflict” between protecting the pension and protecting the careers of officials who would have been required to ask taxpayers for more money.
In his telling, successive boards therefore “kicked the can down the road,” failing to make adequate contributions as liabilities accumulated, while also pursuing investment decisions he now describes as potentially imprudent. Zappala goes so far as to argue that allowing those obligations to accumulate into a liability for future taxpayers was “in and of itself … an unlawful act,” and calls for independent oversight of a board he describes as fundamentally conflicted.
Most interestingly, he called Innamorato out by name, stating that in the fall of 2024 he met with the County Executive and members of her staff and told them that he believed the pension fund was “badly run and woefully underfunded,” asking the administration to work with him to address it.
According to Zappala, that offer was ignored. Later in the letter, he specifically criticizes Innamorato for submitting a 2025 budget without increased pension funding, and this letter was published a few days after Innamorato told the County Council there would be no tax increase in 2027.
In a statement to the Pittsburgh Post Gazette, Innamorato implied that Zappala’s criticism was because of her sex, while also pointing out that she did not create the pension problem.
She is quite right about that. This shortfall took decades to build and involved a whole lot of people who should have known better looking the other way. But it might not matter. The seriousness and immediacy of the problem means it will likely be a central issue of her next term should she be reelected in 2027.
