About one of every 72 Hamiltonians is a U.S. Steel pensioner, and a new report outlines just how much they — and the city — stand to lose depending on the outcome of the company’s bankruptcy protection process.
City staff issued a report Tuesday examining the “worst case scenario” of U.S. Steel Canada (USSC) going bankrupt with a significant funding shortfall in its pension plans. The economic impact study raises concerns about how underfunded the pensions are, how much less money pensioners will have in the city and the shrinking tax footprint of USSC itself.
For now, all pensions and benefits are being paid while USSC continues to restructure. USSC sought bankruptcy protection under the Companies’ and Creditors Arrangement Act (CCAA) in mid-September.
The company is currently examining exactly how much it owes pensioners, out of the public eye. But the city report, based on older data, has some firm estimates.
Hamilton pensioners represented by United Steelworkers Local 1005, who make up more than 65 per cent of all USSC pensioners, draw an average pension of $16,355, the report says.
If USSC goes bankrupt, it could only afford to pay 73.4 per cent of pensions, meaning pensioners would get $4,354 less each year, or $363 less per month.
The projected impact on pensioners not having a 2 per cent cost of living adjustment, meanwhile, is a loss of about $100,000 per employee over 25 years.
Hamilton salaried employees, a group outside 1005, would get 88.5 per cent of their pensions, translating to the loss of about $2,643, or $220 per month.
Ontario’s Pension Benefits Guarantee Fund — which protects members and beneficiaries of privately sponsored single-employer defined benefit pension plans in the event of plan sponsor insolvency — may help soften the blow for pensioners.
The city suggests PBGF payments could increase the average pension funding level, but pointed out the total liabilities that could reach into the hundreds of millions is far beyond what’s available in PBGF.
The province has standing at USSC’s CCAA proceedings, and a government spokesman said the Ministry of Finance is working with USSC to get the “best possible outcome for pension members and other stakeholders under the circumstances.”
USSC has stated its goal is to sell off its Canadian operations by October. If the company is indeed sold, or it goes bankrupt, it’s unclear how much money pensioners will get.
USSC spokesman Trevor Harris said he could not comment on the city’s numbers. “This type of speculation is not helpful to pensioners or the restructuring process,” Harris said in an email to CBC Hamilton.
City would feel affects of pension cuts
Any reduction to steelworkers’ pensions would be noticed in Hamilton, where pensioners contribute some $24 million in property tax each year.
Between 7,000 and 8,600 USSC pensioners live in Hamilton, many of whom are seniors, the report says. Some 6.3 per cent of the Hamilton’s 60-plus population are former U.S. Steel employees. More than 70 per cent of those pensioners own detached homes.
The report also points out the potential health risks associated with pensioners having their budgets strained, including stress, depression and the risk of heart disease.
Seniors, the report says, will be especially hard hit.
“It is hard for seniors to cope with sudden changes in their economic status, due to the limits of a fixed income,” states the report.
Tax footprint shrinking
The city says tax revenues generated from U.S. Steel have been declining since 2000. In 2000, the company paid some $22.5 million in taxes, but it was expected to pay just $6 million in 2014.
In the big picture, U.S. Steel makes up less than 1 per cent of the city’s tax base.
Water-related revenues are also down as the company has scaled back its work. While the company once accounted for 3.8 per cent of water sales, its 2014 total is set to be just 1.3 per cent of the city’s total.
“A worst case scenario,” when it comes to property tax and water revenue, the report says, “would be a further reduction of approximately $3.9 million annually, reducing the current annual revenues from approximately $6.6 million to $2.7 million.”
Hamilton city council’s steel committee is set to discuss the report and other issues at its Feb. 5 meeting.
Source: CBC Hamilton