Governor Wants Pension Reform—Good Luck with That

Looming like the sword of Damocles are the huge increases in state spending needed to keep state pensions adequately funded-there is a $37 billion gap between assets and liabilities. This has prompted the Governor to announce that pension reform will be a priority on his to-do list.

And what is the Legislature with its lucrative pension plan going to do about pension reform? Little or nothing would be a good bet. Kick the can down the road or look around for a nuisance fee or tax to make a small dent in the deficit. But meaningful change? Not until the roof is caving in. The legislators gave themselves a big boost in 2001 and are unlikely to take money from themselves. Public sector unions will not agree to any reforms that touch their benefits. So where is the impetus to do anything serious? This problem has been known about for years and Harrisburg has chosen to study the issue to death and then study it some more.

The Executive Director of AFSCME Council 13, which represents the bulk of state unionized employees, says bluntly, "the state must continue to uphold its obligation to current employees." In other words, taxpayers should get ready for more purse pillaging. Ironically, the union leader reminded that this problem was known about ten years ago and now the bills have come due and its time to talk about raising revenue. That’s so rich it would make your hair hurt. When over the last ten years have any public sector unions ever argued for reduced government spending so more dollars could be set aside for pensions? Indeed, all we hear is that more money is needed for education, social programs, higher pay, better health care benefits, etc.

Unions will never take any of the blame for government fiscal problems nor will they voluntarily agree to help solve them. Instead, they will blame the problems on elected officials who do not have the backbone to stand up to unions and their spending demands.

The union influence combined with the self- aggrandizing motives of the legislators does not bode well for any meaningful action on pensions any time soon. The track record of the Legislature in doing anything remotely restrictive of union power and influence is not one to inspire confidence that they are on the verge doing the right thing for the Commonwealth.

Kick the Can

When you see the words "fresh" and "collar" together you probably think of laundry detergent, not pensions. But the state House has just passed their idea of pension reform for the two statewide systems SERS (state employees) and PSERS (teachers) that involve a fresh start for unfunded liabilities and collars-or maximum percentage amounts that the state or school districts have to contribute will grow year over year.

What does that mean? It means that there would be annual caps on how high employers would have to put in to the pension system in coming years. For PSERS the employer contribution rate (both the state and school districts pay in) would rise from 5.64% in FY11 to 21.20% in FY15 instead of the current trajectory of 8.22% to 33.60% over that same time frame. For SERS (only the state pays in) the employer rate would increase from 5% in FY11 to 20.50% in FY15 as opposed to the current planned increase of 5.64% to 27.72% over the same time period. The year over year incremental growth rates beginning in FY11 would be 1%, 3%, 3.5%, and then 4.5% from FY14 on. Savings on the state’s share from the changes range from $211 million in FY11 to $1.2 billion in FY15.

In other words, get immediate, short term relief for nagging pension pain by spreading it over a longer time frame.

Will the message be heard?

The grand jury listening to the evidence emanating from the Bonusgate trial has issued a report calling for reforms to Pennsylvania’s Legislature. This is certainly an unusual move for a grand jury as their job is to listen to the evidence and recommend that a defendant be held for trial or not. But after eighteen months of listening about abuses and corruption by our Legislators, they had heard enough.

So these thirty three ordinary Pennsylvanians put together a thirty four page report calling for reforms. The reforms include moving the Legislature to part-time, eliminating questionable caucus funds, merging partisan offices and eliminating per diem payments. Surely these are ideas that have been bantered about in nearly every barber shop, diner, café, and gathering place across the Commonwealth. That it came from a grand jury with an up close view of the Harrisburg "sausage factory" has made it news worthy.

But will it signal the beginning of meaningful reforms to state government? Naturally each gubernatorial candidate has seized on this sentiment and is making reform part of their platform-as does everyone who runs for this office. However it is very unlikely those in the Legislature will be willing to go along in any meaningful way. After all Bonusgate is not the first scandal to hit Harrisburg and sadly it will likely not be the last.

Act 111 in Need of Overhaul

In regards to a recent spate of incidents involving City police and fire personnel ranging from allegations ofroad rage, drunk driving, and assault the Mayor wants the departments to "clean up their act" while mentioning that there is another act that definitely needs to be cleaned up-the Police and Fire Collective Bargaining Act, better known as Act 111 of 1968.

"We’ve disciplined officers. We’ve disciplined firefighters. We’ve fired them, terminated them. Only to find that they’ve won their jobs back in arbitration" was what the Mayor said today.

Act 111 has been pointed to as a primary reason as to why municipal budgets have been stretched to the breaking point. Any impasse in a collective bargaining session is submitted to a panel of arbitrators who do not have to consider the financial ability of the municipality in making their decision. Only by entering into Act 47-which says that any contract negotiated after distressed status is declared-can a municipality thwart the possibility of an arbitration award that is too rich.

Now we see what Act 111 can do for management powers as well. The City needs to reduce its workforce so that it can begin to deal with its legacy costs, and Act 111 is doing the City no favors. So one of the action items that needs to be on the agenda of the coalition that is headed to Harrisburg seeking new revenues for the City is reform of the statute.

Pension Reform Blooms in the Garden State

Just over the border from Philadelphia-the city that accounts for 80% of the aggregate shortfall of all local pension plans in the Commonwealth-reform of public sector pensions is taking shape.

According to an article in the Philadelphia Inquirer, the reforms would include a roll back of a 9 percent pension increase approved in 2001, a requirement that new part-time workers to receive 401(k)-like plans rather than defined benefit plans, and a minimum threshold of weekly hours worked for employees to qualify for a pension. A constitutional amendment would force the state to fully fund its pension obligations over a seven year period.

These changes follow several attempts earlier in the decade to obtain long-term change in the state’s pension system. With long range pension and health care obligations estimated to be around $112 billion (that’s for the state only, not the locals), some lawmakers have decided to take the issue on. There will be tremendous pushback from the state’s public sector unions. Consider it a prelude to life in Harrisburg in 2011.