I spent yesterday at the Governor’s Mansion in Harrisburg and I can bring back this report to the people of Delaware County.
As public housing goes, it’s a pretty nice joint.
Those aren’t my words. Those come from Gov. Corbett himself.
So much for the frivolity.
Now for some serious news. Brace yourself, folks. The governor is about to tackle the pension mess this state finds itself in. It’s not going to be pretty. It likely means everyone is going to have to make sacrifices. And I mean everyone. Are you listening, teachers? The governor has heard your lament, that you have done everything you were supposed to do, you made all your contributions, while others let the pension funds slink into a sea of red ink.
Now you’re going to ask us to share in the sacrifice to fix the problem? Yeah, pretty much.
The day started with Budget Secretary Charles Zogby (you might remember his as the former Education Secretary) offering a review of just how bad the pension situation is and how we got there.
The bottom line is it’s real bad. Corbett likes to refer to it as the “tapeworm” in the budget process. The truth is the pension issues now threaten to eat up funds in the budget that could and should be allocated to other areas. With the governor’s well-known aversity to hiking taxes, that does not leave a lot of wiggle room when it comes to righting the pension ship.
The state is looking at $41 billion in red ink tied to the two big public employee pension plans known as SERS and PSERS. The problems go back several administrations, at least back to 2001, when the multipliers were increased. Right after that the markets started to tank. In fact from 2002 to 2011 Corbett’s figures show that investment earnings made up 71 percent of the funds. When the marketwent into a tailspin, and then over a cliff in 2008, funding for the pension plans began to lag. It’s really never caught up.
I specifically asked the governor about that decision to increase the multipliers back in 2001, which many people believe was part of a lure to get the Legislature to back school choice legislation. The bills failed, but the multipliers went into effect, hiking pension funds for our elected representatives. Corbett didn’t want any part of the school choice angle - aside from saying he continues to be for it - but did admit he wishes the multipliers had not been increased.
There also has been legislation over the years that capped employer contribution rates to provide some budget relief to the Commonwealth and local school districts.
Now the bill is due. And Corbett is no longer willing to “kick the can down the road,” as we’ve been doing for years.
Almost everyone concedes that at a minimum the funds need to be converted from defined benefit to defined contribution funds. In other words, similar to the 401K plans the rest of us deal with every day. Sen. Dominic Pileggi, R-9, has legislation that will do just that for future employees.
But that doesn’t solve the problem of the $41 billion in unfunded liability in the two pension plans.
That’s the dilemma the governor faces. And he’s ready to have at it, saying that everything is “on the table,” including:
• Looking at structural changes to the system (read that going from defined benefit to defined contribution.
• Looking at benefit changes to employees. One thing under consideration is taking overtime pay out of the funding equation.
• Looking at accrual, retirement age and other factors
• Looking at risk-sharing.
We’ll hear some of the particulars on Feb. 5, when Corbett delivers his budget address.
Then he’s going to have to sell his plan to both the Legislature, as well as school boards and the powerful teachers’ unions.
This one ought to be a doozy.
Buckle your seatbelts, folks, it’s likely going to be a rough ride.