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RadioPA Roundtable

Radio PA Roundtable 03.01.13

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On this week’s Radio PA Roundtable, Brad Christman and Matt Paul bring you more from the state legislative budget hearings, which included questioning on pensions and liquor privatization this week. Also, Radio PA’s Cathy Clark provides an update on the health of the Susquehanna River.

Radio PA Roundtable is a 30-minute program featuring in-depth reporting on the top news stories of the week.

Click the audio player below to hear the full broadcast:

[audio:https://s3.amazonaws.com/witfaudio/radiopa/Roundtable03-01-13.mp3]

No Easy Answers to Public Pension Woes

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Regardless of any additional reforms, executives from the state’s two big public pension funds are telling state lawmakers that adequate employer contributions are essential.  In this case, the state is the employer and its taxpayers are the ones footing the bill. 

As it stands, the combined unfunded liabilities of the State Employees’ Retirement System (SERS) and Public School Employees Retirement System (PSERS) are north of $40-billion dollars and climbing.  The reasons are many: the 2008 market crash, a lost decade in which the state opted to defer its pension contributions, and a 2001 law that padded pension benefits – especially for lawmakers themselves. 

Governor Tom Corbett is proposing a series of long-term pension reforms in hopes of reducing the short-term burden on the state, and PSERS executive director Jeffrey Clay was peppered with questions during House and Senate budget hearings on Wednesday. 

“If you’re basically asking the question, “can we get to solvency under Act 120?” the answer would be – from the pension system perspective – yes.  The question is whether the state and the school districts can actually afford that,” Clay explains. 

Act 120 of 2010 helped to smooth out the pension spike by reducing the benefits of future state employees and teachers, increasing the retirement age and extending the vesting period.  Even with those reforms being imposed for all new hires, the state’s $1.5-billion dollar pension obligation this year is expected to climb to $4.3-billion by FY2016/17. 

State Sen. Jake Corman

State Sen. Jake Corman

“The policy question for all of us sitting here is, “what are we willing to pay every year?”” said Senate Appropriations Chairman Jake Corman.  As lawmakers are finding out, that’s a question without an easy answer. 

When addressing the issue of switching new hires to a 401(k)-style ‘defined contribution’ plan, the funds’ executives say any system will work as long as it is well-structured and well-funded. 

But critics say that sort of switchover ignores the diminished rate of return for the defined-benefit plans that would still be paying out benefits for decades to come.  “Policymakers should ask the Corbett administration how much will be lost in investment earnings with pension restructuring and how much taxpayers will be on the hook when that happens,” says Keystone Research Center executive director Stephen Herzenberg. 

The Corbett administration is banking on $175-million dollars in savings for the state, next year alone, through pension reforms.  They say PA’s 500 school districts would be able to save another $138-million.

Pension Issue to Heat up this Winter

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The latest prelude to legislative action on Pennsylvania’s public pension crisis came in the form of the Keystone Pension Report, a 19-page document released by the Governor’s Budget Office this week.  It details what led to the $41-billion dollar unfunded liability problem, the consequences of inaction and possible solutions. 

If you do the math, each Pennsylvania household is on the hook for $8,000 worth of the unfunded liability in the state’s two big public pension plans. 

While laying out a broad framework for fixing this mess, the Keystone Pension Report notes several key points: tax increases should be off the table, retirees should not be affected, and the accrued benefits of current employees should not be touched. 

That last point, however, leaves the door open for the exploration of changes to current employees’ future benefits, and that has the public employee unions especially concerned.  “The constitution protects that contract.  No one has the unilateral right to change that contract,” says AFSCME Council 13 Executive Director David Fillman in stressing that current workers’ benefits are sacrosanct. 

A spokesman for the Governor’s Budget Office says the report does not recommend one particular route to solvency, it simply lays out all of the options. 

Governor Tom Corbett wants to include comprehensive pension reform in next year’s budget, and Senate Republicans have already signaled their intent to prioritize the issue as well.

Senate Leader Discusses Accomplishments, Goals

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With the 2011-2012 legislative session set to expire at the end of the month, Radio PA’s Matt Paul took a look back at the past two years with state Senate Majority Leader Dominic Pileggi (R-Chester/Delaware) in a wide-ranging interview.  Calling it an extremely productive session, Pileggi says jobs were the top legislative issue and the most important jobs bills are the ones that will have long-lasting effects. 

“The continued phase out of the capital stock and franchise tax, in both the 11/12 & 12/13 [fiscal] years, we continued that phase out,” Pileggi says.  “Just in this past year we eliminated the death tax on family farms.  We’ve also updated the film tax credit program and actually added a new tax credit for historic buildings.”

Pileggi also cites Pennsylvania’s Fair Share Act and expanded Keystone Opportunity Zone program as important jobs bills from this past session. 

Looking ahead to the 2013-2014 legislative session, Pileggi the biggest jobs issue is transportation funding.  It would obviously provide short term jobs in the form of construction projects.  “Longer-term I think every serious observer agrees that an effective transportation infrastructure – both for cars & trucks and mass transit – is necessary for a competitive environment for job creators,” Pileggi explains. 

He also tells us the Senate will be ready to move forward with a package of bills to address the state’s pension crisis within the first six months of 2013. 

Earlier this month, newly-elected and returning Republican senators tapped Pileggi for his fourth term as Senate GOP Leader.

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Jack Wagner: Consolidate Municipal Pension Plans

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Jack Wagner

Auditor General Jack Wagner

Pennsylvania’s public pension crisis extends beyond the two big state employee plans.  The Keystone State is home to 3,200 different municipal pension plans, and Auditor General Jack Wagner says many of them are in fiscal distress. 

Wagner is authorized to audit about 2,600 of those plans, and his new special report finds that 36% of them are in financial distress.  They have an aggregate $10.2-billion in assets, but $17.4-billion in liabilities. 

Wagner’s top recommendation is to consolidate.  He tells Radio PA that consolidation based on class of municipality could result in 30 – 40 plans, instead of thousands.  “As a matter of fact, with those 3,200, we have 25% or approximately one-fourth of all local public pension plans in America.”

Consolidation could result in drastically reduced administrative costs and increased returns on investment, according to Wagner.  “You would have a lesser obligation of the taxpayer in terms of making commitments to those plans,” Wagner explains.  “This is all common sense.”

It’s also something that would require legislative action, and state lawmakers are already mired in a debate about what to do with the state employee pension plans, which have a combined $40-billion in unfunded liabilities.

No Easy Solution for PA’s Pension Woes

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Pension reform appears to be too big of an issue for the limited fall session, but it will be a priority for 2013.  “The pension crisis that we have is the tapeworm to the budget, and it will continue to get worse and worse if we don’t do something about it,” Governor Tom Corbett said on Radio PA’s Ask the Governor program.

State pension obligations increased by a half-billion dollars in the current budget.  “I think it’s another five or six hundred million dollars additional, next year, that we’re going to have to come up with,” Corbett says.  The number is projected to top $4-billion dollars in 2016, and Corbett says it’s all money that cannot go to other areas of the budget.

With the state pension funds on an unsustainable path, the Corbett administration will continue to be in contact with state lawmakers through the fall and into the New Year.  State Senate Republican Leader Dominic Pileggi (R-Delaware) calls pension reform one of the top two critical issues to be addressed early on in 2013.  “We will continue to try and work through the fall so that we can finish our work in the first quarter of next year,” he says.

Policymakers are tasked not only with stopping the increase in pension costs, but with paying down $40-billion dollars in existing unfunded liabilities.  There’s no silver bullet, but the Public Employee Retirement Commission is holding a series of hearings this fall to try to come up with a set of recommendations.  The panel met last week, and already has additional hearings set for September 19th, October 3rd and October 16th.

Gov. Ready to Focus on Pension Reform This Fall

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Fresh off his second budget cycle, Governor Tom Corbett wants to address Pennsylvania’s rising pension costs this fall.  While the Republican majority did not invite Democrats to the table for budget negotiations this spring, Corbett says public pensions are a different matter altogether.  “This is not a partisan issue… so we’ll probably be reaching out to them,” he explained during a recent q&a with the media.

Governor Tom Corbett

Gov. Tom Corbett

The governor says it was interesting to see many Democrats supporting some aspects of the budget package – including education reforms and an ethane cracker tax credit.

The state’s pension obligation will increase another $500 – $600-million next year alone, and there’s no relief in sight until 2024.  Without action, there will be less and less funding available for other state programs.  “It’s not just a problem that we have at the state.  Municipalities & school districts across the state have that problem, and there are problems like that across the nation,” Corbett says.

Numerous bills have been introduced in the House.  Senate Republicans plan to act on a plan to move all new hires to a 401K-style pension plan where the employee bears the risk, not the employer (in this case the taxpayer).

But, Corbett knows there’s no silver bullet.  “If there was, somebody would have found it already, we’d all be doing it.”  He anticipates a thoughtful, cooperative discussion this fall.

State Capitol Facing North Office Building

PA’s Pension Woes Not Unique

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Wisconsin is the only state with a fully-funded public pension system, according to a new report from the Pew Center on the States.  “Overall the 50-states have a $1.38-trillion dollar funding gap between what they should have set aside to pay for their retirement promises – both pensions and retiree health care – and what they actually have on hand,” explains Pew Center senior researcher David Draine.

Draine tells Radio PA the economic downturn has definitely hurt state pension plans, but the problem has also been decades in the making.  “Lawmakers in states like Pennsylvania and others failed to make the recommended contributions both in good times and bad.”

The current state budget includes $1.1-billion dollars in pension obligations.  That number is expected to nearly quadruple to $4-billion dollars by 2016, and Governor Tom Corbett is making pension reform a top post-budget priority.

“We’ve got to get pension reform done… the vast majority of the money that the school districts say they need is to go to the teachers’ pensions.  That’s where it’s going,” Corbett said at an unrelated news conference last week.

Republican leaders in the Senate appear ready to move on legislation that would move all new hires to a 401K-style defined contribution pension plan.  “It is overdue for Pennsylvania state government to move in that direction,” says spokesman Erik Arneson.  Numerous pension-related bills have been introduced in the state House as well.

A 2010 law increased employee contributions, raised the retirement age to 65 and extended the vesting requirement to ten years for all new hires.  Draine says that will slow the growth of Pennsylvania’s unfunded pension liability, but will not solve the problem.