Pensions, debt cloud horizon

November 24, 2012

Keep the Maalox handy.

That’s the best advice we can offer to state lawmakers following the release of a report last week outlining the state’s fiscal picture over the next five years. A combination of demographic shifts and increased demand for state services will likely lead to some heartburn in Harrisburg.

Even as the national economy is projected to heal in the next five years, the report by Pennsylvania’s non-partisan Independent Fiscal Office forecasts that the commonwealth will have to grapple with escalating pension costs, increased outlays to cover the health care bills of an aging population and a decrease in tax revenue as seniors leave the workforce and use their income for non-taxable items like food or prescription drugs.

And, according to the report, the ability of younger workers to get up and running will be slowed by the ball-and-chain of student loan debt: Pennsylvania has the second-highest rate of student loan debt in the country, coming in at an average of about $30,000 per student. The report noted that “student loan debt reduces disposable income and may prevent recent graduates from buying homes or other goods they might have otherwise purchased.”

How dire is the picture? Pension costs that took up 4.2 percent of the budget this year will eat away at 9.6 percent of the budget by 2017, if current projections hold. In five years, the state could well have a deficit of more than $2 billion.

Gov. Tom Corbett and leaders of the state House and Senate say that pension reform is high on their “to-do” list in 2013, with the notion of state employees moving to a defined contribution plan like a 401(k) having been widely mentioned as a possibility. But there’s no good solution brewing on the horizon for student-loan debt. Last year, funding was cut to the 14 state-owned universities by nearly 20 percent and Keystone State students receive less financial aid, on average, than students in other states. “That has to do with decisions that people in Harrisburg make,” said Pauline Abernathy, vice president of the Philadelphia-based Institute for College Access and Success, in an October interview with the Morning Call newspaper of Allentown.

With the confetti having been swept away from the 2012 election, attention is now turning to the 2014 midterm battles and beyond. After the IFO report, though, all the candidates thinking about tossing their hats into the ring might want to keep them firmly fixed on their heads.



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