10.31.2010 0

Pennsylvanias Lame Duck Robbery

  • On: 11/17/2010 09:23:44
  • In: Fiscal Responsibility
  • By Bill Wilson

    Why put off until tomorrow that which can be fixed today?

    In its lame-duck session, the Pennsylvania legislature on November 15th considered HB 2497, a bill whose sole purpose is to underfund the state’s pension system by approximately $2.9 billion over the next thirty years. Sadly, it passed easily with support from both political parties by a vote of 165 to 31.

    All 31 members who voted “no” were Republicans. They rightly saw that underfunding the pension system for 15 years would mean that the difference would have to be made up in the 15 subsequent years.

    The bill also passed the commonwealth’s Senate 41 to 8, which Republicans control. Again, all 8 members who voted no there were Republicans. But in both houses, most Republicans and all Democrats voted for the bill, and with Democrat Governor Ed Rendell’s support it will become law.

    This, therefore, is a bipartisan failure.

    As noted by the Commonwealth Foundation’s President, Matthew J. Brouillette, “HB 2497 would ‘refinance’ the current unfunded liability so that legislators and school boards can put less money into the pension plans today and push off paying for them until some future tomorrow. Then they claim this reform will ‘save money.’ HB 2497 will no more save money than will skipping your mortgage payments today, and leaving them for your kids to pay tomorrow, with interest.”

    How would it do that? As reported by the Standard Speaker, “School districts now contribute 5.64 percent of their total salary costs to the Public School Employees Retirement System and are reimbursed for about half of that by the state. That rate is projected to jump to nearly 30 percent by 2013 without any action. This bill schedules a 12.22 percent PSERS contribution rate for 2013 with a slower ramp up during the next several years after that.”

    So, rather than make the contributions necessary to keep the system funded into the future, they will be slashed by more than half for a period of over a decade.

    The National Taxpayers Union’s John Stephenson puts it into perspective: “In Fiscal Years 2009-10, Pennsylvania taxpayers paid $843 million towards the Public School Employees Retirement System and the State Employees Retirement System. But starting in FY 2012-13, taxpayers will have to contribute $5.3 billion, an effective increase of $1,360 in state and local taxes per household, to maintain the systems. But instead of making necessary reforms to the public employee pensions, HB 2497 merely defers pension payments well into the future.”

    Stephenson continues, “By deferring payments, HB 2497 does not fix the plans’ underlying problems or save taxpayers money; it only makes the problem worse. In 14 years, taxpayers will have to pay substantially more to sustain the plans due HB 2497’s risky assumptions about plan returns. In short, HB 2947 will force the children and grandchildren of Pennsylvania’s current taxpayers to pay for fiscal irresponsibility they did not cause.”

    That’s simply appalling. It’s similar to an approach taken in Virginia by Governor Bob McDonnell, where to balance the budget, the commonwealth’s pension system was underfunded by $620 million. A $220 million surplus was “magically” produced, and then that too was wasted with temporary spending.

    On a federal level, this is the equivalent of raiding the Social Security and Medicare trust funds to pay for spending now — which is exactly what Congress has done. Today, Congress has borrowed some $4.5 trillion from those funds and other “intragovernmental holdings,” all to pay for general spending.

    This is theft. Under the Pennsylvania bill, current employees will only have to partially pay into the pension fund. Many of them will probably be retired by the time the contributions increase substantially, receiving higher benefits even though they put less into the plan. This certainly would explain why the public employee unions, including the Pennsylvania State Education Association, supported the bill wholeheartedly.

    After all, what do they care? When the pension plan becomes woefully underfunded in the future, it will be up to the commonwealth to tax citizens to pay for it. In the meantime, current employees will get to keep more of their earnings. For the public employees, it’s a win-win.

    Ultimately, incoming Republicans to the Pennsylvania legislature and governor’s mansion, which the GOP now controls completely, will be forced to deal with the problems created by HB 2497. Governor Elect Tom Corbett should put real pension reform on the table immediately, and switch to a defined-contribution plan for all future Pennsylvania employees. And, he should work to repeal HB 2497 to prevent the pension system from becoming underfunded in the first place.

    Ultimately, it is high time for politicians to stop putting off tomorrow what can be fixed today. Stealing from our children to pay for temporary benefits today is insidious.

    Bill Wilson is the President of Americans for Limited Government.

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