Stephens offers plans to fix pension, school funding woes
There are few choices and no silver bullets for solving Pennsylvania’s pension and related school funding problems, but state Rep. Todd Stephens, R-151, told about 35 people who attended a Fort Washington Business Alliance get-together last month that he has come up with some possible solutions.
Funding the public employees’ pension system, which covers state workers and public school teachers, is adding $600 million every year to the state budget, Stephens said.
“It’s a product of poor policy decisions on both sides of the aisle. Promises shouldn’t have been made and underfunded,” he said. “Now we’re in a situation where there is $50 billion in unfunded liability in the pension system,” which will peak at $65 billion in 2023.
“The only way to undo it is to change benefits … the courts have said we can’t do that. … Once the government makes a promise, it can’t take it away without due process. Your pension is your property,” he said. “The rules are different in the private and public sectors.”
Last year a proposal was floated in Harrisburg to move everything into a 401(k) type plan, but it was determined an unintentional downside of that idea would be to change the expected rate of return resulting in a $45 billion loss, so it would not reduce the unfunded liability, he said.
A new plan introduced is to provide a safety net capped at $50,000 worth of income, Stephens said, noting “people at the top [of the pension scale] are far more expensive.” It would essentially be a policy change to have no defined benefit and still provide “a barebones minimum safety net.”
His plan is a hybrid, Stephens said. The $50,000 safety net would apply to those at the high end and only new employees would be in 401(k) style plans, “be- cause the courts have said you can’t change existing employee benefits.” The hybrid would save about $7 billion a year, he said, noting the governor’s office “is looking at it.”
School districts are facing skyrocketing increases in the cost of funding PSERS, which is going up from 16.93 percent to 21.4 percent next year. Upper Dublin School Board President Art Levinowitz told Stephens at the meeting it would cost the district “$1 million in new money [next year] just to pay [the district’s] portion. It’s really hurting us,” he added.
Acknowledging that, Stephens said he has a measure pending to deal with the “discrepancy in school funding,” which ranges from 10 percent to 78 percent of funding statewide. Locally, the Upper Dublin, HatboroHorsham, Wissahickon and North Penn school districts get only between 14 percent and 16 percent of their education funding from the state, with the remainder falling on local property taxpayers, he said.
The chances of changing the school funding formula are “very slim,” Stephens said, as there are “more winners than losers,” and “you will never get someone to vote to get less.”
Under his proposed bill, a Local Effort Equalization Fund would be created to provide a supplement to property taxpayers in school districts that receive less than 35 percent of their funding from the state. The money would be distributed in a manner similar to the Homestead Act in which gaming funds are used to reduce the property taxes of homeowners who have applied for and receive a homestead exemption.
If passed, “156 legislative districts would benefit from the proposal,” Stephens said. “Here’s the catch” — the LEEF would be funded by transferring $250 million from the Race Horse Development Fund. “It’s created a lot of conversation,” he said, with some strongly in support and others strongly objecting.
“I’d like to think the chances are good for creating the fund,” Stephens said, adding he would be “willing to compromise” on where the funds come from.
Stephens praised the passage of a state transportation bill and said he would be pushing for transportation projects in Southeastern Pennsylvania, which “pays bills for the rest of the state” by “contributing more to the state economy than any other part of the state.”