GOP says pensions before taxes
Capitolwire: Legislative GOP says pensions before taxes; Wolf proposes controversial pension borrowing.
By Chris Comisac
Bureau Chief
Capitolwire
HARRISBURG (March 3) – While the governor only briefly mentioned them during his budget address Tuesday, public pensions, if to hear it from legislative Republicans, could be the lynchpin for any progress on the state budget.
“If we’re going to fix our pension problem, we need to look at the structural issues dealing with it, and solve that first, then we can talk about the rest of the budget,” said Senate Majority Leader Jake Corman, R-Centre, following Gov. Tom Wolf’s budget address on Tuesday.
Corman said much of the current fiscal problems facing both the commonwealth and its public school districts are due to growing pension payments.
“We can give school districts relief by fixing pension; we can give universities relief by fixing pension, we can give the commonwealth relief by fixing pensions,” said Corman. He noted the just the state’s current pension obligation – what it must pay – is about $2.8 billion, and it’s going to go up another $2.8 billion during the next few years, and then “stay there for a while.”
“There’s no sense in raising all of this revenue if you’re not going to address what’s driving the costs,” Corman said.
The primary portion of Wolf’s pension proposal focuses on borrowing $3 billion to make an immediate payment against the Public School Employees Retirement System (PSERS) unfunded liability. As of December, PSERS unfunded liability was predicted by the pension agency to peak at nearly $42.9 billion at the end of 2018.
The governor expects the $3 billion pension obligation bond (POB), which is currently prohibited by state law, will produce about $10 billion in savings against that unfunded liability during the course of the next 30 years or so.
Senate Appropriations Committee Majority Chairman Pat Browne, R-Lehigh, said there’s a reason why the state outlawed POBs in 2010.
“The action by the General Assembly – Republicans and Democrats – in 2010 to very clearly state in statute that pension obligation bonds are illegal wasn’t a ‘memo to self,’” said Browne. “It was a statement, with regard to our current risk profile in these systems that are $70 billion in debt, that we can’t increase our risk profile to make the programs more sustainable.”
He also noted the bond rating agencies that during the last few years have all reduced Pennsylvania’s credit rating – due largely to the pension unfunded liability and the state having no sustainable plan to fund the systems – “won’t see anything positive about” Wolf’s POB proposal.
“Pension obligation bonds are something ratings agencies see very negatively – it’s not the way to sustain these programs,” said Browne. He also stated POBs will not be part of the Senate GOP pension plan, which is still in the development phase.
Corman added: “We’ve got to get the governor to acknowledge that this is a problem, other than [proposing] borrowing to solve it.”
Budget Secretary Randy Albright during his morning budget briefing told reporters any pension reform proposal has to recognize that Act 120 of 2010 made significant changes to the pension plan design for new employees, to the point where the state is effectively contributing about 3 percent of employee’s salary to the retirement system.
“Three percent is lower than what most private sector employers provide to fund their pension plans,” said Albright, who argued lawmakers will have a difficult time coming up with additional pension saving beyond what Act 120 already delivered.
Said Albright: “So if we’re going to talk about the additional changes we want to make, and changes that will save additional funds to meet our future unfunded debt obligations, we have to be honest: if those plans are going to mean or include further structural changes to the benefit plan we provide to our employees, then we’re either not, as an employer, going to be making a responsible contribution toward their plans or those changes are simply not going to save money.”
The budget secretary said the governor’s POB plan managed to save money without shortchanging employees’ retirement.
For more about pension obligation bonds – which were the cornerstone of a Senate Democrat pension plan last session – CLICK HERE to read a past Capitolwire column.
One last portion of the Wolf POB plan addresses the cost of borrowing $3 billion: the governor intends to push for “modernization” of the state’s liquor store, not privatization, which his administration believes could generate at least the $185 million the state will need to pay the bond debt service annually.
The state House of Representatives last week approved legislation to privatize the liquor store system, and while House GOP leaders said the House-passed plan was the start to a negotiating process with the governor regarding Pennsylvania’s liquor sales system, they expressed the belief that anything short of “privatization” – and they said modernization would fall short – would likely encounter difficulty in the House.
During floor debate about the liquor privatization bill, House Appropriations Committee Majority Chairman Bill Adolph, R-Delaware, said the agency’s projected growth in operating costs is outpacing its revenue growth.
Wolf is also proposing making some changes to how the state’s two public pension systems operate.
“… Our state has been wasting hundreds of millions of taxpayer dollars on Wall Street managers to handle state pension accounts,” said Wolf during his budget address.
“We are going to stop excessive fees to Wall Street managers,” Wolf said. Albright estimated those changes could save as much as $200 million annually, which would reduce the unfunded liability during the next few decades by about $2 billion.
The governor’s budget anticipates the POB and the manager fee changes would save a total of $1.3 billion – $900 million for the state and $370 million for school districts – during the next five years.
Wolf was also criticized by the Senate GOP for engaging in what they called “a shell game” with regard to his pension plan.
“They moved the PSERS contribution completely off-line [out of the General Fund budget], that’s $1.7 billion …” said Corman, who claimed they did it to keep the governor’s total spend number in his budget proposal artificially low.
Albright, when asked Tuesday morning why a restricted account outside of the General Fund budget was created for the PSERS contribution, said it was done to guarantee future payments.
He said that while the PSERS appropriations remains in the General Fund budget it presents lawmakers “the opportunity to find some excuse not to meet that obligation; and while we can pledge every year ‘No I won’t do it this year,’ the fact of the matter is every year we do do it.”
Albright highlighted the state not meeting its obligations during the last few years, although he did not state that was due to the limits put in place on the state’s pension contributions by Act 120 of 2010. For more about how that law has actually contributed to the state’s unfunded liability, CLICK HERE to read a 2013 Capitolwire story
Robert Storm
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