HARRISBURG, Pa. (AP) — Governor 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 in a little more than a week.
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?”
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