Pennsylvania needs to end the credit-card approach to pension reform: John Yudichak
on July 18, 2014 at 1:00 PM, updated July 18, 2014 at 1:06 PM
By John Yudichak
A $50 billion pension crisis does not happen overnight – and the current crisis involving Pennsylvania’s severely underfunded pension system is no different.
In 2001, the state pension funds were fully funded and the defined benefit system was a clear example of fiscal efficiency.
Pennsylvania’s pension problem got its start when former Gov. Tom Ridge and a Republican-controlled General Assembly passed a 50 percent increase in pension benefits for legislators and a 25 percent increase for state and school employees.
I voted against the pension increase, and did not accept the expanded benefits.
My father, a child of the Great Depression, would often admonish me about the dangers of a credit card mentality that encourages consumers to buy today and pay later.
“How are you going to pay for it?” my Dad would ask.
And if you did not have a clear answer on how to pay the bill, he would tell you that you should not buy it.
I voted no on the 2001 pension increase because I could not explain to voters how it was possible to expand benefits but at the same time allow the state and local school districts not to pay their portion of the pension costs.
Harrisburg was infected with the credit card mentality – buying unsustainable pensions benefits and ignoring the payment due notice.
Regrettably, for Pennsylvania taxpayers, that pension bill has come due.
For their part, state employees paid their fair share throughout the past decade. They played by the rules; paid their pension bill; and for their fidelity to the Commonwealth, they are now being demonized for having a pension.
Despite the current governor’s posturing, the problem is not state employees, their unions or the defined benefit pension system; the problem is politicians, driven by blind ideology, who choose to ignore the economic reality of paying the state’s fair share of the pension bill. I
In 2010, under the leadership of a Democratic governor, Democrats and Republicans in the General Assembly made pension reform a top legislative priority.
And, in a bi-partisan effort, we made strides to deal with the severe economic downturns caused by the Sep. 11, 2001 and the 2008 financial crisis.
We voted to substantially reduce pension benefits for all state employees; increased the retirement age to 65; set a schedule to increase the state’s pension contributions; and increased the vesting period to 10 years for new employees instead of five years.
These measures were designed to save the Commonwealth an estimated $33 billion over 30 years. The 2010 pension reforms are working, but we are still not paying our bills.
Earlier this year, I supported legislation to enroll all elected officials in a 401(k)- style retirement plan that will save the state nearly $700 million over the next 40 years.
It is not the answer to addressing our unfounded pension crisis, but it is a piece of the puzzle to modernizing state government with a smaller, more efficient legislature.
There are appropriate ways to legislatively address our pension crisis – but unfortunately, the pension plans that Gov. Tom Corbett has put forward would undermine the economic security of over 250,000 Pennsylvanians who depend on the state’s defined benefit pension system.
State troopers, correction officers, nurses, construction workers and all state employees deserve a fair and reasonable pension benefit.
And without significant and responsible reform to our current pension system, we will be unable to afford the benefits that these men and women worked their entire lives to earn.
Gov. Corbett’s proposed plan is smoke and mirrors at best – and a bait and switch at worst. It would do nothing to address our $50 billion in unfunded pension liability and provides no immediate savings in this year’s state budget.
We have read this book before and it does not end well for our pension system or for Pennsylvania taxpayers.
There are sensible pension reforms circulating in Harrisburg by Democrats and Republicans, but they are being held hostage by the administration and their special interest allies.
A plan supported by Senate Democrats would allow the state to address the 10 years of underfunding pensions by borrowing $9 billion to immediately reduce the unfunded liability.
The interest on those bonds could easily be afforded with a reasonable severance tax on the natural gas industry and no additional burden to local property taxpayers.
Coupled with the reforms already implemented in 2010, an infusion of new funding would put our pension system back on the right track without having to scrap the entire system or shortchange those state workers who played by the rules.
Through skyrocketing school property taxes and diminished state funding for education, we are all feeling the stranglehold that the pension crisis has on our state budget – so we must act swiftly, but more importantly, we must act smartly.
The current administration, despite its bluster, continues to display a propensity for inaction on significant and reasonable revenue generating proposals that get at the heart of our pension crisis – paying down our unfunded pension liabilities.
Pennsylvania needs to end the credit card approach to pension politics and finally pay our fair share before the price to local property taxpayers becomes too much to bear.
State Sen. John Yudichak, a Democrat, represents the Luzerne County-based 14th Senate District.