Pa. Pension Debt Totals $9,000 Per Household, Corbett Says

By Eric Boehm | PA Independent

HARRISBURG — There is little disagreement that Pennsylvania’s $47 billion-and-growing public pension debt represents a serious threat to the financial future of the state, its school districts and taxpayers.

But there is little in the way of agreement when it comes to how that debt can, or should, be addressed.

Gov. Tom Corbett and some allied lawmakers seized the bully pulpit recently in what appeared to be an effort to spark some movement on the public pension issue that mostly has been dead in the water since Corbett pitched a package of reforms in February.

Corbett has pegged his proposed budget for fiscal year 2013-14 on supposed savings from overhauling the state’s public pension system to save $175 million next year.

On Tuesday, he pointed out that it was not only the state budget at stake, but household budgets as well.

The pension’s $47-billion unfunded liability amounts to a $9,000 bill for each household in Pennsylvania, the governor said. On its current course, the liability will top $65 billion by 2018, bringing the per household total to more than $13,000.

“That’s the cost of doing nothing,” Corbett said. “Are you ready to write your checks?”

To save money in the long run, Corbett has proposed reducing state contributions to the pension system for the next few years in exchange for benefit changes for current and future employees that would begin in 2015.

The changes for current employees would not affect benefits already accrued.  Retirees and those who retire before 2015 would not see any changes in benefits.

Without changes, the future will bring double-digit tax increases at the school district level, said state Rep. Chris Ross, R-Chester, a supporter of Corbett’s plan. School district property taxes cover part of the state pension costs.

“Also, we’re going to be faced with substantial cuts in critical government services,” Ross said.

While the governor’s aim is clear, there are plenty of diverging opinions — mostly among fellow Republicans.

Senate Majority Leader Dominic Pileggi, R-Chester, said last week there is division in the ranks over the idea of changing benefits to new hires and scaling back benefits for current employees, even if those changes only would affect benefits earned in the future.

He said there is “very little support” for changes to current workers’ pensions because for a variety of reasons, including constitutional ones and a “basic fairness principle.”

But there is support in the state Senate for changing the benefit structure for future employees, he said, noting that 26 members of the chamber have signed on to a bill that would do exactly that.

“We have to move forward to see if the House has some interest in doing that,” Pileggi said.

The state last adjusted the pension system in 2010 with the passage of Act 120, which changed the benefit structure for employees hired after it was signed into law.  It earned support from lawmakers on both sides of the aisle, along with unions and former Gov. Ed Rendell, a Democrat, who signed it into law.

Corbett’s reach is undeniably bolder, but in that boldness it may lack the necessary support to be approved.

The state’s powerful public-sector unions, which represent many of the state and school district employees that would be affected by the pension changes, are adamantly opposed to any changes in benefits for current workers. Dave Fillman, executive director of American Federation of State County and Municipal Employees Council 13, which represents 65,000 workers, including many state employees, said even pension changes for new hires — as Pileggi has suggested — would be met with skepticism.

“It does not reduce the unfunded liability one iota,” Fillman said.

He’s right about that. Only increasing state contributors or cutting back on current employees’ benefits will reduce the pension debt.

And going after benefits for public employees already on the job will trigger an immediate lawsuit from the unions, Fillman and other labor leaders promised again on Tuesday.

For the most part, the unions and Democrats in the General Assembly say there is no need for further pension changes – instead, they say, give the reforms passed in 2010 more time to work.

But those lining up behind Corbett say the current system is “economically unsustainable,” as state Sen. Mike Brubaker, R-Lancaster, put it.

Facing such a serious problem calls for bold steps, he said.

“Should we be successful, this will be the most comprehensive pension reform package in the United States of America,” said Brubaker, chairman of the Senate Finance Committee and a key player in any potential pension overhaul.  He promised a hearing on the governor’s plan “in the very near future.”

One hearing already took place in the state House, but there has been no other movement on the issue.

State Rep. Glen Grell, R-Cumberland, one of the prime architects of Act 120 of 2010, says that measure always was intended as a stop-gap solution that would need to be revised.

Now is the time for a long-term solution, Grell said.  But he questions whether the governor’s plan accomplishes that.

On Tuesday, Grell suggested adding pension obligation bonds to the mix.  The bonds allow the state to borrow privately to cover some — Grell suggested about $9 billion — of that $47-billion unfunded liability.

By borrowing, the state can show a good faith effort to reducing the unfunded liability and meeting the future obligations to its employees, which might make the unions more willing to bend on other issues, he said.

But the union leaders said they wanted to know exactly how a bond would be used before signing on to that idea.

Budget Secretary Charles Zogby said all ideas remain on the table, but cautioned against using pension bonds because they would come with hundreds of millions of dollars in additional debt-service payments.

There are other issues to work through on the bond front.

For one, they are illegal.  Act 120 banned the state from using pension obligation bonds, though that easily could be reversed with the passage of another pension-overhaul package.

Second, and more concerning, is the fact that credit-ratings agencies have said such maneuvers by states and municipalities would risk a credit-rating downgrade.

But with so many opinions, one thing is certain.  If nothing is accomplished by June 30 when the state budget deadline hits, the pension issue will be larger and more difficult to grapple with next year.