There’s an easy way for Pennsylvania to lift itself out of its pension mess: Require every household in the state to cough up $9,500.
“Ready to write your check?” Gov. Tom Corbett asked facetiously.
Corbett’s pension overhaul plan will soon be introduced in bills in the state House and Senate, and if the Legislature fails to enact changes, you can expect to see teacher layoffs, larger class sizes, program cuts and escalating school taxes in the coming years, as the pension debt increases from its current $45 billion to about $65 billion by 2018.
We have been aware of the severe shortfall in the two pension systems for state government workers and public school employees for years. When the stock market tanked in 2008, the situation rose to crisis level. At the time, popular opinion was that this crisis would ease if the market bounced back. It has, with the Dow Jones Industrial Average surpassing 15,000 earlier this week. So, why are we still so much in debt?
Back in the early years of this century, optimism was high, and legislators hiked benefits for state and school workers by 25 percent. They also padded their own pockets and created a cost-of-living increase for retired state workers. Pension managers foresaw through rose-colored glasses the Dow rising to 20,000 by 2008. Surprise!
With the market in turmoil, it would have been a good time to load up on stocks, but managers reacted by dumping equities in favor of bonds. Interest rates reached record lows, however, so interest on bonds could not come close to the increasing cost of the pensions. The result is that the state’s pension mess has grown worse as the market has risen, not improved.
Corbett’s plan faces stiff opposition from Democrats and a possible constitutional challenge. But it is the right way to deal with the crisis. The plan, according to Rep. Chris Ross, R-Chester, doesn’t touch benefits of current retirees or those already accrued by current existing employees. It moves future state and school employees into a 401k plan, like many private sector employers offer. It also lowers future pension benefits for the more than 370,000 current state and school employees, starting in 2015, to produce a savings of $12 billion over 30 years.
The plan also limits the rate of growth in the state contributions to the pension system to provide some budgetary relief for roughly the next five years.
One of the plan’s Senate sponsors, Lancaster Republican Mike Brubaker, said at a news conference Tuesday, “It’s time for us to act. If not now, when? If not us, who?”
Our lawmakers should find the courage to deal with this problem now.