Pennsylvania has a public pension problem.
Alliteration aside, Gov. Tom Corbett’s office says the state needs to start taking steps to ensure its public pension systems — underfunded to the tune of $47 million —doesn’t go bust.
Corbett is calling on lawmakers to enact “meaningful” pension reform, saying without it, the state will struggle to meet its employer contributions and may be forced to choose between paying pension obligations and funding programs and services for Pennsylvanians.
Currently, Pennsylvania’s two pension systems’ — the Employee Retirement System (SERS) and the Public School Employee Retirement System (PSERS) — have debt which outweighs their assets to the tune of more than $47 million combined. That number is projected to reach $65 billion within the next five years.
The governor’s budget office blames lagging pension investment returns as well as legislation that artificially suppressed employer contribution rates to relieve financial strains on the Commonwealth and school districts.
In response, Corbett is turning to state lawmakers like Rep. Martin Causer, R-Turtlepoint, for new legislation that would overhaul the state’s present pension system.
Causer said there are a number of proposals under consideration, including a “hybrid pension” plan that would combine the state’s limited, defined benefit pension plan with a 401K style defined contribution plan resulting in smaller employee benefits than those currently received and savings to the state of more than $10 billion over 30 years.
Causer stressed the proposal would not impact retirees or existing employees, only future state employees.
The “hybrid pension” proposal is gaining traction in the state House and has Corbett’s support.
But Causer said a meeting of House Republicans on the subject failed to yield a consensus.
“There were a lot of questions and continue to be and that’s why it wasn’t voted on today (Wednesday),” Causer said.
Another House Republican, Rep. Matt Gabler of DuBois, said the pension crisis is causing a $600 million increase in costs in the upcoming year’s budget.
Gabler favors reform that deals with the short term budget impacts of the pension crisis and long-term stability in the state pension system.
“In the short term, we need to make sure that we fully fund our pension obligations and ensure we are not ‘kicking the can down the road,’” Gabler said. ”In the long term, we need to create a pension system that protects the promises made to current employees and retirees while protecting the taxpayers against the shortsighted decisions often made by elected officials, such as the ones that created our nearly $50 billion pension debt we face today.”
Gabler added, “If we do nothing, the pension system will make it impossible for school districts to continue to put more resources into the classroom, and will continue to consume an ever-growing portion of our state budget.”
St. Marys Area School District Superintendent Ann Kearney said her district knows the strain of increased PSERS’ payments first hand, joining districts across the state under great budgetary constraints due to increasing PSERS retirement percentages as they are mandated by the state.
“As wages increase and the percentages for retirement increase it is a tremendous burden on the budgets for the districts,” Kearney said. “On top of that, rural districts have decreasing enrollments, higher health care costs and we are forced to re-think the educational programs that we are able to offer.”
Kearney said pension reform is needed and suggested the state go a step further in considering cost reductions by “cutting back on the mandates that they place on districts, reducing the assessment contracts with testing companies, rethinking the payment of costly charter and cyber-charter schools and give back more local control.”
While school districts are getting creative in compensating for added retirement and health care costs, at the state level Pennsylvania is bracing for a $1 billion budget deficit next year attributed to slow tax revenue collection.
Corbett has vowed to consider new taxes to help cover the budget shortfall if lawmakers are able to deliver pension reform.
But without a consensus, Causer said there is no timetable or guarantee.
“The governor wants us to act before the budget deadline but I’m not sure about that,” Causer said. “There’s no consensus between the House and Senate on how to move forward.”
The sense of urgency is not lost on Causer, who said inaction on pension reform will mean systemic failure with “very large tax increases at the state level or school levels, or pension systems going broke.”