Daily Local News (West Chester, PA)
Reform bill falls short on pension debt
Could we stop using the word “historic” to portray legislative efforts better described as overhyped, overdue and half-baked?
Pennsylvania lawmakers and Gov. Tom Wolf reached for their favorite adjective in praising a pension reform bill that will do little to reduce a $77 billion public pension debt over the next 30 years — ensuring that school districts will keep passing along “automatic” property tax hikes in the foreseeable future. This is reform? This is historic? Senate Bill 1 accomplishes something that should have been done two or three decades ago — shift future state employees and teachers into more of a selffunded retirement plan.
Those hired after Jan. 1, 2019 will have a choice between a hybrid system (part 401(k), part traditional defined-benefit) or a full 401(k)-type plan.
Some employees, including state troopers and corrections workers, are exempt because the nature of their jobs. Wolf has promised to sign the bill.
Because all current employees will get the pension benefits they’ve been promised, the new retirement structure isn’t projected to draw down the billions in accumulated pension debt until 2048.
It is progress in one sense, though.
The Legislature and governor didn’t make things worse — as they did in 2001, when benefits were increased and the stock market was expected to pick up the slack.
We know how that turned out.
In 2010, the Legislature refinanced pension debt — yet kept alive a tradition of not attacking a huge “unfunded liability” in the pension systems.
The Pennsylvania Independent Fiscal Office says the pension bill will save $1.4 billion over 30 years — far less than the predictions of Wolf and legislative leaders. More critically, it absolves the taxpayer of picking up $20 billion in pension investment losses, should the market tank.
The Pew Charitable Trust says the changes enacted last week should bump Pennsylvania’s public pension systems — rated fifth worst in the nation — up to the middle of the pack.
Politically, this might have been the only deal possible between a Democratic governor and a GOP-controlled Legislature.
Some Republicans wanted a complete switchover to a defined-contribution plan, but that has drawbacks, too — such as narrowing the revenue stream of employee contributions to “frozen” definedbenefit systems.
Also, the courts have held that benefits in existing public pension plans can’t be scaled back unilaterally.
Avoiding the tough choices on pensions comes with a bigger price.
It ratchets up the need for property tax reform, as school districts will continue to be billed $4 billion to $8 billion a year to pay a half-share of their employees’ pensions costs.
Right now the Legislature is looking at borrowing $3 billion for operating expenses for the coming year, along with an expansion of legalized gambling.
That follows a boost in tobacco taxes and alcohol sales licenses last year.
Sloughing off an increasing tax burden onto gamblers, smokers and drinkers inevitably becomes a zero-sum game.
A crisis for another day? It’s already here.
Avoiding the tough choices on pensions ratchets up the need for property tax reform, as school districts will continue to be billed $4 billion to $8 billion a year to pay a halfshare of their employees’ pension costs.