Pension reform needed now
Gov. Tom Corbett likens Pennsylvania’s public pension problem to a tapeworm, a parasite that devours new revenue as fast as an improving economy can create it.
“:H KDYH WR FRnVLGHr HYHryWKLnJ,” Ln fixLnJ WKH SrREOHP; LW’V the “tapeworm of the budget,” he told a Digital First Media editorial board meeting this month.
Corbett called pension reform the one thing he seeks to acFRPSOLVK WKLV yHDr. 3rRSHrWy WDx rHIRrP ZLOO KDYH WR ZDLW.
Corbett’s call to action is not without merit. The public pension drain has escalated to a crisis in Pennsylvania with nearly $700 billion in year-over-year cost growth robbing state coffers of 62 percent of any new revenue.
In recent years, both the state employees fund (SERS) and public school employees fund (PSERS) have accrued unfunded liability amounting to billions of dollars a year, according to budget Secretary Charles wogby,. The funds’ current unfunded liability is $41 billion, not including future shortfalls.
Just to get the funds back on good footing would require a WDx LnFrHDVH RI $9,000 Rn HYHry KRuVHKROG Ln 3HnnVyOYDnLD, wogby said.
How Pennsylvania’s public pensions got to this point can be HxSODLnHG, EuW nRW ZLWKRuW SDLn. ,W’V D VWRry RI JHnHrRuV EHnHfiW increases without corresponding changes to contributions. It’s a timeline of “kicking the can down the road,” as wogby puts it, intentionally underfunding the systems and pushing the liability into the future. In 2001, the Legislature moved to enhance PHPEHr EHnHfiWV Ey LnFrHDVLnJ WKH PuOWLSOLHr WKDW FDOFuODWHV pension amounts. In 2002, employer contributions from school districts and government were capped. In 2003, Act 40 was passed to restrain future growth in employer contributions.
And, throughout the time, investment growth was nil, sending the funds into a downward spiral.
UnOLNH 401(N) Rr SrLYDWH LnYHVWPHnW IunGV, D GHfinHG EHnHfiW SHnVLRn SODn PDLnWDLnV D OLDELOLWy Ln SDyRuW nR PDWWHr ZKDW happens to investments. While SERS and PSERS fell in value, liabilities grew. And the tapeworm grew, too.
While the path that brought us here is obvious, the way out is more clouded.
7KH rHIRrP flRDWHG PRVW RIWHn LV PRYLnJ DZDy IrRP D GHfinHG EHnHfiW SODn WR GHfinHG FRnWrLEuWLRn, D SrRSRVDO WKDW ZDV SDrW RI a 2010 pension reform package which did not go far enough. ZRJEy VDyV VWDWH RIfiFLDOV DrH ORRNLnJ FORVHOy DW rHIRrPV WrLHG Ln RWKHr VWDWHV, LnFOuGLnJ FKDnJHV Ln EHnHfiW FDOFuODWLRnV, VuFK DV FDSSLnJ WKH VDODry Rr rROOLnJ EDFN WKH PRGLfiHr.
Corbett says a proposal will be part of his budget plan this yHDr, DOWKRuJK KH DGPLWV KLV RIfiFH KDV OLWWOH WLPH WR fiJurH RuW WKH VSHFLfiFV. HLV RnOy KLnW WR WKH HGLWRrV’ JrRuS ZDV WKDW DGMuVWments to the multiplier could make an important difference.
BRWK RIfiFLDOV VWrHVVHG FKDnJHV KDYH WR WDNH LnWR FRnVLGeration what people have already earned and what they are counting on. Current retirees have to feel secure their pensions won’t be affected, they said.
What they don’t say is how they plan to convince state employees and the state teachers union that change has to happen.
“7KH WDxSDyHrV JHW LW,” ZRJEy VDLG. 7KH SHRSOH RI 3HnnVyOvania know this is a crisis. But for pension reform to work, the state needs to get the unions and groups representing public employees on board, as well as the lawmakers.
One way might be to enlist the ideas and help of those groups in writing the reforms. It’s time now to get down to brass tacks DnG fiJurH RuW D SODn WKDW nRW RnOy ZLOO ZRrN EuW DOVR WKDW ZLOO have the needed support. That tapeworm gets hungrier by the day. - Journal Register News Service