Pennsylvania pension crisis

Pennsylvania’s Municipal Pension Problems Are Isolated, Not Epidemic, Says Township Representative

David Sanko, executive director of the Pennsylvania State Association of Township Supervisors, penned an piece in TribLive on Friday claiming that Pennsylvania has a pension crisis – but it’s at the state level, not the municipal level.

Sanko contends that, aside from a handful of horror stories, most of the state’s municipalities aren’t buried in pension liabilities.

Sanko writes:

A handful of local governments — primarily large and midsize cities like Philadelphia, Pittsburgh and Scranton — have retirement programs that are underwater and have been for quite some time.

But the majority of municipal pension plans are doing just fine and provide a stark contrast to the horror stories. In places like Bethel Township in Berks County, Castanea Township in Clinton County, Connellsville Township in Fayette County, and Great Bend Township in Susquehanna County, employee pension plans are overfunded by as much as 700 percent.

These communities are the rule, not the exception, according to recent data from the Pennsylvania Employee Retirement Commission, which has been documenting the distress level of the 1,448 municipalities that receive state aid to offset mandated retirement benefits.

Despite the small number of severely distressed municipal plans, some are portraying the problems of a few as a statewide epidemic and want everyone, including communities that have kept their pension plans healthy and above water, to swallow the same bad medicine.

They’d like to consolidate all local retirement plans into a single statewide system and let the healthy ones’ assets be used to balance the troubled ones. But bigger isn’t better. All we have to do is look at the state’s behemoth and woefully underfunded system, which accounts for 90 percent of the pension stress in the state, for proof of that.

A report from Pennsylvania’s top auditor released last week found that the majority of the state’s municipal pension funds were not “in distress”.

However, 562 plans were classified as “distressed”.

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Pennsylvania Lawmaker To Propose Shale Tax to Fund Pensions

A Pennsylvania representative is planning to introduce a bill in January that would levy a 3.5 percent tax on companies that frack in the state. The revenues – estimated to be $400 million annually – would then go to paying down the Public School Employees’ Retirement System’s (PSERS) unfunded liabilities.

From Main Line Media:

The way state Rep. Kate Harper sees it, a shale tax could ensure drillers are paying their fair share and help solve the state’s pension crisis at the same time.

Harper, R-61, began circulating a memo Dec. 17 to get co-sponsors for a bill she plans to introduce in January calling for a 3.5 percent shale tax, with the proceeds estimated at $400 million annually, going toward the state’s $32 billion unfunded Public School Employees’ Retirement System liability.

“If we don’t get pensions under control, everybody’s school taxes are going up,” Harper said. “My bill adds a severance tax to the existing impact fee and uses it for education, specifically pensions.

“I believe the majority of Pennsylvanians are OK with fracking,” she said, but they want two things: regulation of the industry to ensure the water stays clean; and, if the money is needed that the drillers pay their fair share.

The bill is similar to one introduced last session by state Rep. Madeleine Dean, D-153, that Harper co-sponsored but didn’t even get out of committee, in that it would keep the current impact fee in place, she said.

Those fees are used to address infrastructure and other impacts in communities where drilling takes place, and to contribute to several statewide environmental programs, a press release from Harper says. So far, the impact fee has generated more than $630 million.

[…]

“If the tax is too high we will lose jobs, so I’m trying to have them pay at a reasonable level and not discourage them so they leave the state,” Harper said. The 3.5 percent tax she is proposing “is not onerous on the drilling industry” and “compares favorably with the 5 percent tax in West Virginia,” she said.

PSERS was 63.8 percent funded as of June 30, 2014.

Pennsylvania Pension Contribution To Rise By $466 Million in 2015

Pennsylvania’s required annual contributions to its two pension systems are set to grow by $466 million next year – bringing the state’s tab in 2015 to over $2 billion.

The information was revealed by the state’s budget secretary during an annual update on the state’s fiscal condition.

From the PA Independent:

State-level contributions to Pennsylvania’s two pension plans will have to climb by an estimated $466 million in the next budget, after an increase of about $520 million this year. Next year could be considered the mid-point of a decade-long “pension spike” that sees retirement costs consuming larger and larger shares of the state’s spending each year.

Budget Secretary Charles Zogby of Gov. Tom Corbett’s outgoing administration outlined the bad news this week in an annual mid-year update on the state’s fiscal situation.

After four years of seeing pension costs grow — the state spent about $500 million on pensions in the last budget before Corbett took office, compared to more than $1.7 billion this year — and making limited headway on any changes to how the state pays for its employees’ retirement, the governor’s team will soon hand responsibility to Wolf.

[…]

The pension crisis has its roots in a series of decisions made by three different governors and state legislatures between 2001 and 2003. A series of changes to the pension plans increased benefits without asking state workers to contribute more towards retirement, boosted retirement benefits for those who were no longer working at all and allowed the state to take a decade-long “pension holiday” without paying for those increased costs.

That pension holiday ended in 2011, leaving first Corbett and now Wolf holding the bag.

It was also revealed that pension payments could rise above $3 billion annually by 2019.

Corbett Says He’d Form Pension Commission If Elected To Second Term

We’re three weeks away from the gubernatorial election and incumbent Pennsylvania Gov. Corbett is trailing big in most polls.

The theme of his campaign has largely been pension reform, and he has been doubling down on that stance lately. On Wednesday, Corbett told a newspaper that, in addition to calling a special legislative session to address pension reform, he would also form a commission to study reform ideas.

From PennLive:

In an interview with PennLive’s editorial board on Wednesday, Corbett talked of forming a commission to study pension reform in advance of calling a special legislative session.

Corbett said he would establish a commission consisting of state and local government officials and union representatives to come up with some recommendations to address pension costs.

Those costs are growing in the state budget by $610 million annually until they plateau at $3.3 billion in 2017-18. Once the commission has completed its work and come up with some recommendations of what might work, he would call a special legislative session to focus on this issue.

“The legislators aren’t experts [on pension reform] by any stretch of the imagination and I’m not disparaging the legislators. This is a very complicated issue. Let’s sit down. Let’s get this studied. And let’s be willing to have the political courage to do it,” he said.

Taking a shot at his opponent who has downplayed the severity of the pension issue, Corbett said, “That’s more than a problem. That’s a crisis.”

The commission would likely look something like New Jersey’s Pension & Health Benefits Review Commission.

See further coverage of Pennsylvania’s governor race here.