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PA’s Pension Crisis Requires Corbett to Take the Reins

Commentary: Pennsylvania must face the growing and unsustainable costs of retirement benefits for public school teachers and state workers.

By Eric Boehm | PA Independent

HARRISBURG — Halfway through his first term, Gov. Tom Corbett is about to face his biggest political challenge – one that has little to do with polls but a lot to do with the fiscal future of the Keystone State.

Pennsylvania must face the growing and unsustainable costs of retirement benefits for public school teachers and state workers.  The problem amounts to about $40-billion liability in payments of benefits to retired public school teachers and state workers.  In the coming years that figure will stop being an ominous sign at the bottom of a ledger and start having real consequences for the people of Pennsylvania.

Unless changes are made, the state’s contributions to its two pension systems will climb from about $1.1 billion last year to more than $4.2 billion in 2016 and more than $5 billion by 2020.

That increase is like a “Pac-Man” eating away at the state budget, Corbett has warned, and no matter what issue is important to you, the pension crisis will affect it.

The state cannot take on that additional $3 billion without adjusting spending elsewhere.  Experts say discretionary spending like funding for higher education is likely to be a target.  Earlier this year, Moody’s said the state’s pension costs were a major reason why it was downgrading Pennsylvania’s credit rating.

Corbett has not been shy about identifying problems, but he’s been unwilling to use the bully pulpit to call for action or lean on the General Assembly for solutions.

Generally, his message on any issue — from privatizing the state liquor stores to charter school reform — has been “I’ll tell you what I think of it when the bill reaches my desk.”

It’s an attitude that Corbett brought with from his previous careers as district attorney and attorney general.

Since last spring, Corbett has been talking about the need for pension reform that tackles those exploding costs. But enough of the talk.  Now is time for action.

Corbett should propose immediate changes in the benefit packages for future employees, including moving all new hires into a 401(k)-style pension plan.

Next, he should call for changes to the future benefits of current employees.  Allow workers to keep all benefits they have earned, but set a date in the near future to roll all existing state and public school workers into the same 401(k)-style system.

Here’s the kicker:  Those two changes would do nothing to alleviate the $40 billion liability.  But they would at least keep the problem from growing larger.

Only after moving all state workers and public school teachers into a sustainable pension plan can Corbett and the General Assembly start paying down that $40 billion liability. Doing so without a tax increase may prove impossible, but should be the goal.

There is no such thing as a quick-fix, but finding a solution is critical and pension reform is one of those things that cannot be left to the Legislature alone. The political costs are too high and the special interests are too powerful.

Besides, we already know how that will turn out.

The last time lawmakers tackled pension issues was in the fall of 2010, in the waning moments of Gov. Ed Rendell’s administration.  By that point, the lame-duck governor held little sway, and it showed. Political interests trumped the best interest of the state’s businesses and taxpayers.

The result of was a “reform” so weak that even some of the architects now admit that it did little more than kick the can a few years down the road.

Corbett is the key to preventing that kind of weak result again in 2013.

This commentary was originally published on September 13 as an op-ed in Region’s Business Magazine for Philadelphia

Contact Eric Boehm at Eric@PAIndependent.com

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