HARRISBURG — Gov. Tom Corbett and his budget secretary have
used stark terms to discuss the state of Pennsylvania’s public-sector pensions,
a topic that many expect to be addressed when their 2014-15 budget proposal is
unveiled on Tuesday.
The challenge they face is that the cost to maintain the
state government pension system, and to pay the state’s share of public school
workers’ pensions, is about to increase by $600 million.
Corbett proposed dealing with it a year ago, saying that
“resolving our pension crisis will be the single most important thing we do for
decades to come,” and pushing for a 401(k)-style plan for new employees and
“some adjustment in the way future benefits are calculated” for current
workers.
Pensions, along with new transportation infrastructure
spending and liquor privatization, were his three priorities during last
summer’s budget negotiations. Transportation funding was enacted last month,
while the liquor and pensions proposals have languished.
But Corbett has returned to the topic of pensions recently,
saying as he toured the Farm Show in Harrisburg a couple of weeks ago that he
needed Democratic support to enact changes.
“You can’t tax your way out of this, people can’t afford to
continue that,” Corbett said. “So some beginning of pension reform is going to
have to happen.”
He spoke of traditional, defined benefit pensions as an
anachronism.
“Why did they have them? That’s what it was back then. You
know, public sector unions weren’t paid that well,” Corbett said. “I’m not so
sure that we can necessarily agree with that today.”
For local school districts, growing pension demands come
after several years of belt-tightening, said Steve Robinson with the
Pennsylvania School Boards Association.
“It’s really impossible for most districts to cut enough to
pay for the increase and maintain any type of education program that you’d
consider high quality,” Robinson said.
One proposal many are expecting from Corbett is to
temporarily lower the minimum amount state governments and school districts
have to pay into the pension funds. That approach, sometimes referred to as
moving “collars,” would let the state government and school boards pay less
than what would be required to make the funds actuarially sound.
The cost of the pensions is projected to skyrocket by
billions of dollars in the coming years, so that would buy some time while the
governor and 228 legislative seats go before the voters. But it would also come
at a price, and by itself would make the problem worse.
A major contributing factor in the current pension situation
is the previous decisions by state policymakers to delay the pain of pension
contributions.
Bad years for the markets and 2001-02 laws that increased
pensions for workers and lawmakers while giving cost-of-living increases to
retirees, also set the stage for the difficult decisions now facing the
governor, Legislature and school boards.
Four years ago, in the waning days of Democratic Gov. Ed
Rendell’s administration, he signed into law a measure that lowered the collars
and squeezed savings from new hires.
Last month Corbett Budget Secretary Charles Zogby spoke of
possibly allowing lower payments into the pension plans in the short-term but
also offsetting the cost over the coming decades by making other changes.
State Rep. Glenn Grell, a Republican from the Harrisburg
suburbs who sits on the public school pension board and has spent considerable
time on the issue, is skeptical about moving the collars again.
“Though it might be politically attractive to do that, the
long-term consequences of that is not good policy,” Grell said.
Grell’s own proposal would combine putting more investment
risk on future employees, borrowing, and negotiating lower benefits with those
currently in the pension system to ask them “to voluntarily agree to those
changes so that we don’t have a constitutional challenge.”
A host of other alternatives were listed by the Public
Employee Retirement Commission in a report last year, including cutting back on
retiree health care, avoiding retiree COLAs, increasing funding through taxes or
some other stream of new money, stopping subsidies for local government
pensions, selling off state assets or issuing pension obligation bonds.
The next move belongs to the governor.
“You’ve got to bite the bullet,” he said during the Farm
Show tour. “$600 million, every year, of new money? What am I going to do?”
Source: Pottstown
Mercury
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