Tag Archives: Pensions

Lobbyists as State Pensioners

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Want an inkling of how the government leviathan grows and builds protective barriers around its ever expanding reach and power over taxpayers and citizens? Thanks to an AP story this morning the public has learned something we should have known long ago. In at least 20 states, lobbyists for school districts, cities and counties are eligible for taxpayer funded and guaranteed pensions.

How utterly absurd but how easily predicable. The practice ought to be viewed as a major scandal but in these times of Benghazi, the NSA, the IRS, a New York mayoral candidate, Fast and Furious, Solyndra and illegal Justice Department harassment of a Fox reporter, the revelation that people who have spent all or most of their careers helping governments and school districts get more taxpayer money and favorable legislation out of state legislative bodies will garner hardly any notice beyond a one day story.

It is another example of what the Founders were so concerned about with representative government. To wit, the creation of close ties between elected officials and special interests with the power to help them get re-elected. And working together they abuse the public interest and taxpayers (many of whom, sadly, are perfectly content to let it happen or are part of the group getting the favored treatment). Labor unions are long since major beneficiaries of this type of corruption of representative government.

Lobbyists-who are by definition not government employees-working for private or non-profit agencies whose primary, if not exclusive, source of revenue comes from governments and therefore taxpayers, should never be allowed to double dip and get a taxpayer funded pension. Their compensation package with the employer should be the provider of any and all employee benefits. Only employees of governments and government entities should be eligible for taxpayer guaranteed pensions. A government pension for these non-government employees extends status to them they should not have since they are subject to the same rules as government employees.

This situation extends to Pennsylvania where the Pennsylvania School Boards Association (PSBA) employees have been ruled eligible for taxpayer funded and guaranteed pensions. The ruling is decades old and was handed down by an attorney general who viewed the association as an extension of the school districts. It is time that ruling was reversed. School districts should not be allowed to basically hire an outside firm, regardless of its name or affiliations, and then make its employees the equivalent of school employees when it comes to pensions. The practice ought to be stopped for future hires and current Board employees should not be able accrue further pension benefits beyond the end of 2013.

If the legislature wants to do something easy about pensions, they should fix this outrage. But the PSBA in collusion with the teachers unions has its tentacles deep into the legislative process and will no doubt fight any such change.

Pennsylvania Credit Rating Takes Another Hit

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Citing the unwillingness of political officials to make difficult decisions, Fitch bond rating agency has lowered Pennsylvania’s credit rating. This follows Moody’s downgrade last year. Fitch also says that unfunded pension obligations now represent the dominant share the state’s long term obligations.

The failure to address the problem this year compounds the issue and inevitably makes the eventual coming to grips more difficult. There are reasonable proposals on the table including those made by the Governor earlier this year. Fear of offending the powerful unions has hamstrung the Legislature who apparently cannot put the well-being of the state ahead of their fear of being opposed heavily by unions in the next election.

But no one should be surprised. This is the same Legislature that refuses to deal with the money wasting prevailing wage law, public ownership of liquor stores, teacher strikes, transit strikes or any other issue that unions defend with all their considerable power.

While they might congratulate themselves on maintaining their privileged positions, they must be made to understand that in the long run, their opposition to solving any problems they create will make it harder for Pennsylvania to compete. The boost the state has received from Marcellus Shale will not be enough to overcome the obstacles represented by the free market killing behavior of so much of the body politic.

More downgrades can be expected. How many will it take to get Harrisburg’s attention?

Philly School District Lays Off 3,783 Employees

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Facing a budget deficit in excess of $300 million, the School District of Philadelphia has announced the layoff of nearly 3,800 people. The layoffs amount to about 20 percent of the roughly 19,000 total personnel on the district’s payroll.

Why the big deficit? Based on the district’s proposed budget, the two largest causes of the shortfall are a sharp drop in Federal grants and the deficit from last year that required borrowing to fill the gap-borrowing that cannot be repeated. Another problem that is developing to exacerbate the funding shortfall going forward is the hike in the amount the school district will have to contribute to pensions. Unless there is agreement on pension reform legislation, Philadelphia, as well as most school districts in Pennsylvania, face ruinous increases in pension funding. And that means higher city taxes, more layoffs or both. Philadelphia, like many other communities across the state, is not in any position to absorb higher taxes.

Serious pension reform is needed and teachers’ unions must consider the pain they themselves will suffer in the short run as evidenced by the layoffs already occurring across the state. Layoffs that will grow as the pension burden gets larger in the years ahead. Fighting common sense reforms that preserve benefits earned to date and ward off major tax hikes is a train wreck in the making for the unions.

Legislature Restarts County Pension Reform Effort

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Is this the year changes come to Allegheny County’s Retirement System, a self-insured defined benefit plan covering more than 7,400 non-uniformed employees, jail guards, deputy sheriffs, and County police officers?

 

 

If that question sounds familiar, it should: in the 2011-12 session the House version of a reform bill passed that chamber unanimously but never got past the Senate Appropriations Committee (it made it there just about this time last year).  Earlier attempts were likewise made in recent legislative sessions but the changes sought by proponents have proven elusive. We noted in a Brief in December (Volume 12, Number 61) that the proposal might come back.

 

Because Allegheny County system’s guidelines are codified in the Second Class County Code, any substantive change has to come from Harrisburg. The General Assembly has done plenty of tinkering with the County’s retirement statute over the last forty years. Consider that the statute as it existed in the 1950s required all employees to reach age 60 and have 20 years of service to attain normal retirement benefits.  Amendments lowered the age of retirement for police to 50 (in 1974) and to 55 for the sheriff and deputy sheriffs (in 1989), prison guards (in 1992), and probation officers (in 1998).     

 

Thus far, legislation has passed the House and is now in a Senate committee (there is an identical Senate companion bill that is in the same committee) and, based on a reading of the House’s fiscal note on the 2013 bill, not much of the tenor has changed from earlier versions of the legislation.  Should the reforms become law, new County hires would no longer be able to count overtime into their pension, would have to work more years for the County to be qualified for a pension (25 years instead of the current 20), would have a period to vest of ten years instead of eight, and would calculate final average salary from the highest two years of the final four to the highest four years of the final eight.  With interpretation of the state’s Constitutional language on the impairment of contracts taken to mean pensions for current workers cannot be touched, so savings are gradual and obtained by changes to future employees. As employees under the current system retire and new hires eventually replace them, there would be a corresponding decrease in the normal cost for the pension system (both the County and the employees contribute at the same rate) that would reach $16 million twenty years after the enactment. 

 

It is easy to see how the argument is going to shape up.  Those in favor of the reforms from the County government as well as the County’s legislative delegation are looking at a system that was 85 percent funded in 2005 that is now 58 percent funded as of 2011 and have probably taken note of the pension problems encountered by the City of Pittsburgh and may want to head similar problems off before things get really bad.  Every year that passes before changes apply to new hires postpones the time when cost savings would arrive.

 

Those opposed to the changes, on the other hand, have to make a convincing argument that employees who are not yet even employed by the County, don’t bargain with the County, and have no standing should not have a different pension than the one in place.  This is what happened in 2009 when a House committee took testimony in Pittsburgh on the changes and heard from heads of bargaining units.  One made an argument about a “two-tier” system which “…is a dangerous thing between workforces, unions in the workplace in general. You have certain people that are able to benefit from something and others that are not.  They do the same job, work the same hours, complete the same task…”  Presumably the insinuation was that there might be intra-union conflict if employee A could count overtime into his pension and retire after 20 years of service while employee B could not. Of course anyone taking the job would be willingly accepting the differential-no one would be compelled to work for the County. 

 

Maybe time will bear that out. In the intervening years since that testimony was taken several substantial changes have been made at the state and local level to differentiate new employees hired by the public sector:

 

  • The state passed Act 120 in 2010 that created two new tiers of school employees hired after July 1, 2011 with a lower multiplier rate on final average salary, a longer vesting period and a higher retirement age (to 65 from 62) and a new tier in the state employees retirement system for those hired after January 1, 2011 which did the same with the multiplier and increased retirement age by five years (changing most to either 55 or 65 years of age).  People hired since those dates are working alongside others who are not under those benefit structures.
  • The Port Authority made changes to its plans for non-represented and IBEW employees where new hires are in defined contribution plans, with those employees working alongside employees in defined benefit plans.  The Authority also negotiated a new contract with the ATU where new hires will only be eligible for three years of post-retirement health care, with those employees working alongside of current employees who are in various tiers of benefit qualifications tied to age and service requirements.
  • The Act 47 recovery plan for Altoona eliminates retiree health care for employees hired on or after January 1, 2014 and Harrisburg’s plan eliminates it for those hired after the adoption of the plan. 

 

That’s standard operating procedure: if pension benefits for current employees are viewed as sacrosanct and there are limitations for bankruptcy filings for local governments in steep trouble with generous retirement packages made by officials in previous years, then the gradual process of nurturing pensions back to health falls on new hires.

 

Whether the proposed changes to the County’s system makes it through the legislative process this year will provide insight as to the Commonwealth’s appetite to take on wholesale pension reform.

Pension Reform Might Touch All

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According to the website of the Pennsylvania Municipal League, whose mission is to "strengthen, empower, and advocate for effective local government", there is scheduled to be a press conference today to unveil municipal pension reforms. As we have noted in our work, going back to 2007, Pennsylvania has over 3,000 "local" plans-those covering uniformed and non-uniformed employees of counties, cities, boroughs, townships, home rule municipalities, and authorities. If the state’s 500 school districts were not consolidated into one system (PSERS) the share of pension plans concentrated in Pennsylvania as a percentage of all plans across the country would swell.

It would be a surprise if the proposed reforms to be outlined for municipal plans were to follow exactly what the Governor proposed for PSERS and the system that covers all state workers (SERS) earlier in 2013. One wonders how legislation would treat local governments who have placed their employees (almost exclusively non-uniformed) into defined contribution type plans (53 of the 298 plans in Allegheny County are non-defined benefit plans) if the goal is to move away from defined benefit plans. Age of retirement, length of service, overtime calculations, and many other areas will likely be addressed in one way or another.

Bankruptcy Will Test Pension Promise

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Stockton, CA is similar to Pittsburgh, PA in terms of population (2010 Census showed the former with 291k, the latter with 305k) and land area (61 square miles and 55 square miles) but while Pittsburgh waits to see if its nearly decade long existence under Act 47 recovery status and oversight will be lightened by at least one Stockton has been given permission to declare bankruptcy. When Act 47 was on the horizon for the Steel City in 2003, many observers felt that the City was indeed entering bankruptcy (see footnotes on page 3 of our 2009 report on municipal bankruptcy) but the reason municipal distress and oversight were put into place was to stave off a Chapter 9 filing.

But Stockton has entered, following a filing by Vallejo in 2009 and one newspaper report on the filing notes "At issue will be whether U.S. bankruptcy law trumps California law, which says the pension plan must be funded". It is interesting to note that a memorandum on the Vallejo filing stated that once in a bankruptcy court-since the municipality cannot be forced there, and the state is free to place as many hoops for the municipality to jump through, even outright prohibiting a filing-"presumably, state constitutional provisions [on the abrogating of contracts, such as pensions for current employees] would yield".

Note that the article points out the City of Stockton has done a considerable amount of action: cutting employees, stopping bond payments, cut employee benefits (presumably other than pensions) and enacted an emergency spending plan but it keeps depositing money into the state pension system. It is almost the reverse situation of a Pennsylvania municipality that enters Act 47 and then drags its feet on agreeing to a recovery plan: the state will withhold money, but not if it is for pensions (natural disasters and redevelopment projects already underway also qualify).

But it makes the point that we made nearly three years ago to the day that asked what municipalities are to do if they can’t get out from under bad pension promises: cut services and tax themselves out of existence in order to pay pensions? Is that not what appears to be happening in Stockton?

Unions Threaten Court Challenge to Governor’s Pension Reforms

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With the predictable certainty of robins returning in spring, public sector unions in Pennsylvania have thrown down the litigious gauntlet, promising lawsuits against Governor Corbett’s plans to head off a financial crisis stemming from massive unfunded pension obligations.

The unions are opposed to the idea of having new employees being placed in defined contribution pension plans but they are hopping mad over the prospect of having the formula for calculating retirement benefits changed on the future earnings of current employees. The reform plan calls for the current workers to retain the benefits accrued to date but will lower the rate of payout on earnings from when the law becomes effective through retirement. Obviously, for workers close to retirement the impact will be small but for those with 10 or more years left to go to retirement there will be a significant effect. The longer the time to retirement the greater the reduction in benefits will be.

But what choice does the Governor have? The pension systems for state employees and teachers are woefully underfunded and the state government is facing the prospect of having to allocate additional billions a year of state funds to return the pension funds to a financially responsible condition. These additional payments are money the state does not have unless it raises taxes substantially.

There is another option of course. The state could cut education and other funding as well as its own employment levels sufficiently to cover the pension payments. Or it could renegotiate contracts to lower dramatically current compensation including health care, vacations, salaries, sick leave, etc. And it could urge school districts to do the same. Absent any meaningful concessions, the layoffs should begin.

The proposition must be that the excessively generous pension and other benefits promised by irresponsible governments and school districts in the past must not be allowed to wreck the current economy by forcing ever higher taxes to sustain the promises. There must be some willingness on the part of the unions to recognize the plight taxpayers are facing. If they persist in their unwillingness to make any concessions, then there is little choice but to slash the size of payrolls to compensate. If they decide to play hardball, the state and school districts must be ready to throw down their own gauntlets.

Benchmarking Pittsburgh

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City of Pittsburgh, know thyself. So goes the Socratic admonition.  Here’s some information to help in the self-knowledge. 

 

 

In order to see how the City performs on various measures of local government functions; how much it spends, taxes, how many people it employs, its legacy costs, and its authorities and schools, the Allegheny Institute in 2004 created the concept of the Benchmark City. The Benchmark City allows for an approximation of national norms of city governing by taking four regional hub cities from across the U.S. (Salt Lake, Omaha, Columbus, and Charlotte) and amalgamating them together to form a construct with which to gauge Pittsburgh’s performance.  After undertaking the initial analysis in 2004, we have updated the data in three year intervals and just recently released our 2013 report.

 

What did the 2013 analysis find?  An in-depth analysis can be found in the report, but here is a summary: on a per capita basis Pittsburgh spends more overall, collects more taxes and more non-tax revenue, and spends more on police and fire than the Benchmark City.  On the key measure of general fund spending, the gap between Pittsburgh and the Benchmark City was 46 percent ($1,539 to $1,051). When staffing levels are examined (on a per 1000 person basis), Pittsburgh is higher on total employees, total police, and total fire.  It has higher per capita debt obligations, a lower pension funded ratio, and pays out more in workers’ compensation.  City authorities employ many more people and have much more assets. Meanwhile, school spending and school taxes per person are considerably higher.  Overall, 2013 comparative results were not all that different from those found in the three previous Benchmark City reports as they took snapshots of budget and audited data at specific periods of time.

 

It is fair to say that positive change has occurred since 2004 when we first created the Benchmark City comparing Pittsburgh with cities of similar population size. Remember, that the City had just entered Act 47 recovery status and an oversight board like the one in Philadelphia was being discussed.  Gone are the business privilege and mercantile taxes, the $10 occupational privilege tax, and in their place are the payroll preparation tax and a $52 local services tax.  Act 47 status could be revoked based on the recommendations made by the recovery team in November of last year. 

 

With nearly ten years of benchmarking data on hand it is also possible to look back at 2004 and compare the relative standing of Pittsburgh to the Benchmark City now to see where the gap on certain variables has improved, stayed the same, or gotten worse.  There is good news. Pittsburgh has significantly improved its standing relative to the Benchmark City on pensions and debt.  In 2004, the funded ratio of Pittsburgh’s pensions was 43 percent lower than the Benchmark City.  By 2013, the gap had shrunk to 13 percent. Obviously the 2010 revenue plan crafted locally in response to the mandate by the state under Act 44 had a major impact. In 2004 the funded ratio in Pittsburgh was 51 percent and the Benchmark City 89 percent.  As Pittsburgh’s ratio climbed to 62 percent, the Benchmark City ratio fell to 72 percent, thus the combination of Pittsburgh’s improvement and the Benchmark’s poorer showing worked to close the gap. 

 

Then too, per capita debt, which was 233 percent higher than the Benchmark nearly ten years ago now stands at 64 percent higher.  Pittsburgh’s per capita debt fell by more than $800 while the Benchmark City debt rose by over $300 per person. If there is a strict adherence to reaching the debt to spending goal laid out by City Council (12% of spending taken up by debt by 2020) then improvement will continue in the future. 

 

Total staffing and fire staffing (per 1000 people) have also seen movement in a positive direction. Per capita school spending and per capita school taxes (which are not under the control of City officials in Pittsburgh or any of the cities that comprise the Benchmark, but are critically important) are still higher in Pittsburgh as of 2013, but again the relative standing between Pittsburgh and the Benchmark shrank since 2004.

 

That being said, the City’s per capita spending still remains close to 50 percent higher than the Benchmark,  now as it was did in 2004 and the gap between it and the Benchmark City on taxes is likewise the same (62% higher in 2004, 57% higher in 2013).  There is no noticeable difference in the staffing levels or asset holdings of related authorities which, again, are not directly part of any city’s government but perform services critical to taxpayers and have directors exclusively or partially appointed by city officials.

 

Did anything get worse since 2004?  The student population to city population (students per 1000 people) was 29 percent lower in 2013 compared to 20 percent lower in 2004.  Police staffing was 13 percent higher in Pittsburgh in 2004 and is now 24 percent higher. 

 

In sum, we conclude the Pittsburgh has made progress, but there is still much more work to do.  Whether there is one oversight group or two going forward, they will have to continue pressing the City for more restraint and downsizing of government.

Tallying Other Benefits

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With the delivery of the budget for FY 2013-14 and the announcement of how to wrangle pension costs for state and school employees (our Brief discussed the highlights of the proposal) it should be noted that there is a lot more to the benefit puzzle.

The spring edition of Education Next documents, through the use of Bureau of Labor Statistics data, the cost of teacher health care vs. private sector health care (teachers pay less toward single coverage, more toward family coverage as a percentage share) and on union and non-union rates of contribution (teachers aren’t broken out as a sector by the BLS, but the authors did run comparisons overall to see that union health coverage costs were higher than non-union costs). Finally, the piece looked at Wisconsin, where changes to collective bargaining resulted in decreases to district costs on single and family coverage.

How does this translate locally? Let’slook at the largest district in the County, the Pittsburgh Public Schools. In 2011, the district paid $72.4 million in "employee benefits": dental insurance, life insurance, income protection insurance, social security contribution, retirement contribution, unemployment contribution, workers’ compensation, self insurance medical health (39% of the total), retiree health care, and other employee benefits. In 2013, the current fiscal year, employee benefits are totaled to come in at $85.3 million (18% higher than 2011) with the expected PSERS contribution doubled since 2011 and the self insurance medical health up $10 million from 2011 and representing 45% of the total of benefits.

Governor’s Pension Reform: Does It Have a Chance?

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Well, it is here; the Governor’s plan to stop the impending budget calamity created by unfunded pension liabilities.  To be sure, the far reaching proposals face a very uncertain future in the Legislature.

 

 

A little background.  In the fall of 2012 the Pennsylvania Office of the Budget released “The Keystone Pension Report” detailing the steps that have produced a $41 billion unfunded liability for the state’s pension plans covering state workers (SERS) and school employees (PSERS). The report also offered suggestions as to how the state might begin a process of addressing the enormous unfunded liability.

 

Although no specific reforms were recommended by the report-a pension reform proposal was to come, and did, as part of the FY 2013-14 budget address-there was a five point framework for change:

  1. Taxpayers would be put first.
  2. Retirees who had earned their pension would see no changes.
  3. Current employees would not have their accrued benefits touched but “components of current employee’s prospective benefit” could be altered.
  4. The costs should not be shifted to the future.
  5. Experience from other states should be studied.

 

The Governor’s reform proposals, as spelled out in the 2013-2014 Executive Budget, match up fairly closely with the framework set out by the Keystone Report. Explicitly, there was no mention of a tax increase to fund pensions, so point one was clearly satisfied.  The benefits earned by retirees would remain unchanged and the benefit plan for current SERS and PSERS members would remain the same until 2015.  However, at that point, a lower multiplier for pension benefits, 2 percent times years of service, would be used instead of 2.5 percent unless the employee elected to contribute an amount sufficient to keep the multiplier at 2.5. An average of the last five years of compensation would determine the basis of pension payments. Further, pensionable compensation would be capped at 110 percent of the average salary of the prior four years when determining final average earnings. Then too, the Governor’s proposal would place a cap on the pensionable income at the maximum Social Security income on which contributions are made and benefits calculated. Thus, the reform plan has largely adopted points two and three of the framework with much detail on the changes to future pension benefits for current employees.

 

To point four, the Keystone Report stated “…any short-term prospective budget relief should be paid for by long-term reforms…” The same year when the alterations to future benefits for SERS and PSERS members are to go into effect all new hires will be enrolled in a defined contribution plan with SERS members contributing 6.25 percent of pay and PSERS members putting in 7.5 percent.  Basically, the state would be closing enrollment in the defined benefit plans offered by the systems (as of 2011 there were a combined 589,000 active, retired, and vested but inactive members) and placing new hires in a 401(a) system.  As members of the defined benefit plan retire and new employees come in the hope is that the costs of the pension system come down, albeit gradually. 

 

Lastly, the Keystone Report looked at reforms made in other states in 2010, 2011, and 2012 and classified them along the lines of “strategy” (whether the state was asking for higher employee contributions, raising retirement age or service time, and switching from a defined benefit plan to a defined contribution or hybrid plan) and who the reform(s) affected: new employees or both new and current employees.  Much of that analysis came from the National Conference of State Legislatures which has for many years detailed statewide pension reform plans.  In 2012,   Louisiana, Kansas, and Wyoming among others set into motion plans that would close existing defined benefit plans to new employees or create new tiers with higher age and service requirements for new hires.

 

Interestingly, not all change is happening at the state level.  In 2012, the California cities of San Diego and San Jose both had local ballot measures to amend their city charters’ language on retirement benefits.  In San Diego, voters approved a ballot question that (1) would put all new hires, with the exception of police officers, into a defined contribution plan, (2) permit the City to seek limits on what constitutes employee compensation (through bargaining and negotiation) for pension calculations, and (3) eliminate the ability of current and former employees to vote to change their benefits.  The San Diego Councilman who spearheaded the reform movement argues strongly that only base salary should figure in pension benefit calculations while factors such as overtime, longevity pay, etc., should play no role in pension benefits.

 

In San Jose, voters approved a question that would require employees to pay more into their pensions or voluntarily move to a plan with reduced benefits, limit benefits for new hires, and require voter approval for increases to future pension benefits.  The reforms, even though receiving a comfortable majority, face court challenges.

 

Keep in mind that this is just the proposal stage and that the Governor has stayed true to the ideas laid out in the Keystone Report.  It is up to the General Assembly to debate, modify and possibly enact the proposals. Then Pennsylvanians will see what, if any, the reforms can look like.  Would the General Assembly decide to put the issue of pension reform in front of Pennsylvania voters such as happened in cities in California?  The last time a ballot question related to pensions went before the voters was in 1981 when voters were asked if the state Constitution should be amended to allow spouses to partake of increases to benefits so long as the finances of each system extending the benefits were actuarially sound. It was defeated. 

 

And how will members react when hearing from public sector unions, who, not surprisingly, have decried the proposals in the strongest terms? A state employee union stated in a press release that by proposing a defined contribution system for new hires the Governor is “…trading the promise of retirement security for retirement insecurity” and wants to give the Act 120 legislation more time to work.  The teachers’ union stated that the “…proposal includes costly, unconstitutional changes that won’t solve the pension crisis, but will reduce your pension benefits and weaken the retirement security that you earned and you paid for.” That statement is quite ironic in that the entire motivation for the reform effort is the huge increase in taxpayer funding that will be required to meet the pension obligations.

 

At this point it is important to ask whether the Constitution’s language means that something passed in a prior legislative session can create a suicide pact for future ones.  According to the Keystone Report the causes of the massive pension problem can be traced to promises made by laws passed in 2001, 2002 and 2003. What does the Constitution say about this predicament? Article 1, Section 17 prohibits the General Assembly from passing laws impairing contracts. Further language in Article 3, Section 26 says that “…nothing in this Constitution shall be construed to prohibit the General Assembly from authorizing the increase of retirement allowances or pensions of members of a retirement or pension system now in effect or hereafter legally constituted by the Commonwealth…”

 

So what does that mean?  To the first section, the state’s Municipal Pension Handbook notes that “the Pennsylvania Supreme Court has applied [this principle] to the rights of public employees in their pensions…as such, once a public employee has worked even a single day, he or she has not only earned that day’s pay but a guaranteed right to such future pay that formed part of the employer’s promise of compensation”.  On the second, the implication is that when times are good the Legislature could increase pensions but there is no language that allows for a decrease or a cut in a situation like the one faced by SERS and PSERS now. Obviously, the richer benefits should never have been granted because when the bill comes due as it has, the difficulties in undoing the damage will prove virtually insurmountable.

 

The question is: if it comes to a court battle, how will the judiciary interpret a plan in which the benefits earned up to a certain point are not reduced, but the pension benefits accruing based on future earnings beyond that point are reduced?  Would the courts rule that the Constitutional sanctity of contracts has been trampled?  If so, where do taxpayers go for relief from the ill-considered actions of earlier Legislatures?  Protection of employees is important, but in the private sector, when the pension benefit costs are threatening a company’s survival, relief can be sought through bankruptcy. State and local governments as well as school districts in Pennsylvania are effectively denied that option.

 

Moreover, if a Constitutional amendment becomes necessary to overcome the problem, it will almost certainly never get the required votes in the General Assembly to go on a ballot and voters have no right to petition the Commonwealth for a referendum.  And even if the Constitution were to be amended, could the new language ex post facto overturn provisions in currently existing contracts or “employer promises”?

 

If the pension reform fails, the “Pac-Man” or “tapeworm”, as the Governor’s report characterizes the increasing share of the budget going to cover unfunded pension fund liabilities, will eat away at other portions of the state budget.  If the reforms are enacted the proposal envisions that the employer contribution rates will be lowered from an expected 4.5 percent to 2.25 percent in 2013-14, rising by a half a percent per year thereafter. This is instead of rising 4.5 percent per year to top out at close to 30 percent by fiscal year 2016-17. 

 

It should be incumbent on those persons and groups who view pensions as sacrosanct and inviolate to suggest areas of the budget that can be cut substantially in order to satisfy the pension plans’ need for ever more finding. 

 

One thing is certain, with the crucial funding requirements for highways and bridges demanding more tax dollars, and with the state’s taxpayers already taxed heavily by state and local governments and school districts, asking for additional billions of dollars in revenue to cover pensions is simply not politically or economically prudent. If all meaningful reforms in the state’s two big pension plans are blocked and no significant reductions in costs are forthcoming, there will be no choice for the state and school districts but to begin slashing other personnel costs. 

 

Fewer employees, lower contributions to the generous health care benefits, fewer sick day allowances, heavier workloads, pay freezes, etc., will have to be on the table. Employees with the least seniority will take the brunt of the hits given the rules governing layoffs in most contracts. 

 

There is no free lunch.  Taxpayers cannot afford the massive additional pension burden that is coming and some relaxation of objections to all attempts to stem the tide of increasing pension fund allocations must be in the offing.  Insistence on the status quo will lead to a raft of problems the opponents of reform will not like.  The divisions between government employees and taxpayers will almost certainly widen and grow increasingly bitter.