Our opinion: The gorilla in the room
There’s no question that when it comes to scintillating political issues, pension reform is not one of them.
And yet, it ripples through the birth of a new state budget the way a tossed cinder block disturbs a small pond.
Everybody is concerned about spending for education, right? Pension reform is a major factor in that decision. Everybody is concerned about social services costs, right? Pension reform affects that as well.
In fact, with a state pension system that is already $45 to $50 billion underfunded, and payments to keep it afloat estimated to increase by $610 million next year, wrestling the 800-pound gorilla in the room without significant impact on state taxes and services is a daunting task. And, like all daunting tasks faced by the Pennsylvania General Assembly, this one is fraught with significant political roadblocks.
It is now the middle of May, barely six weeks before the Pennsylvania State Constitution requires that a budget be in place for the coming fiscal year. The constitution also requires that total revenues and expenditures be absolutely equal.
And yet, a pension reform bill still eludes General Assembly. There are proposals, of course, but nary a bill has been introduced in either the House or the Senate to test with votes.
The governor would like to ease state employees and public school teachers into a defined contribution plan, similar to an employee-funded 401k program many people in the private sector are familiar with. In that plan, the state’s contribution would be fixed, unlike the current program, where the benefits are fixed and the state must pay all the freight and compensate for the shortfalls. That plan also calls for pensions to be “off the table” by law in any future contract negotiations, something the administration assures us is constitutional.
There are other plans concocted by Republican legislators as well, including capping benefits already negotiated.
There is a Democratic plan that would borrow $9 billion in pension obligation bonds, the hope being to rely on favorable interest rates to pay down the deficit and come out ahead. That’s wince-inducing as well.
Meanwhile, school districts are watching and hoping that whatever comes out of the grinder of budget negotiations doesn’t undercut their own budget decisions.
When the proposals are compared, blended and rendered into some sort of cogent plan – and we desperately hope they will be – it will likely be an amalgam of bits of the aforementioned proposals, borrowing from each. No one will be happy, but the political prospects for moving forward are reasonable.