Governor Tom Corbett has repeatedly talked about the need for meaningful pension reform, but his recent budget proposal undermines both employee retirement security and Pennsylvania's future fiscal health. His plan kicks the can forward by using gimmicks to "balance" the budget.In the budget speech he delivered on February 4, Corbett called for reforms to the state's two major public employee retirement systems. The governor said:
"Billions in new debt to our state is the cost of doing nothing... The only question is whether we will do it now, when it's still a manageable problem, or let others do it later, when it's an all-out-crisis."
The problem is that Corbett's actual spending plan is worse than doing nothing.
The governor's proposal temporarily lowers the minimum amount that state government and school districts pay into the public pension systems next year through the employer contribution. So-called "savings" from this move could amount to $130 million for school districts and $170 million for state government. From that perspective, this budget gimmick goes a long way to make it appear that the fiscal year 2014-15 budget was balanced.
The move, however, threatens the security of public pensions and other vital state services. Delaying $300 million in payments to state pension systems means that $300 million has to be made up by future legislators. That's not the only loss, however, as that is less money earning investment income. That additional gap must also be addressed in the future.
Underfunding annual pension contributions is one reason Pennsylvania finds itself with such a large unfunded liability, and therefore skyrocketing pension costs. The governor's proposal will dig the unfunded pension hole deeper.
There are, however, solutions to the pension problem available to Gov. Corbett and the people of Pennsylvania.
Lawmakers first need to recognize the extent of Pennsylvania's outstanding debt. State Budget Solutions' recently published Fourth Annual State Debt Report reveals that Pennsylvania has an outstanding debt of $185 billion. Of that total, $157 billion is from the state's market-valued unfunded pension liability; $16 billion is unfunded retiree (OPEB) health care and $12 billion is other debt.
The most effective reform would be converting existing plans to defined contribution systems like those that have been effectively used by most of the higher education faculty around the country.
Real pension reform means providing true retirement security for all public employees, and ensuring that public employers (state government and school districts) keep their promises. It means keeping Pennsylvania communities safe and strong by making sure essential services are not cut because of public pension debts.
Finally, it means keeping the politicians that have so far failed to protect state pension systems out of public employee retirement. Public employees themselves need to have retirement control, ownership and portability.
It is clearly past time for politicians in Harrisburg to stop playing games with public pensions and focus on providing true retirement security for all public employees.
Bob Williams is the President of State Budget Solutions, a non-partisan organization dedicated to fiscal responsibility and pension reform. Williams is a former Washington state legislator and gubernatorial candidate.