New Castle News

November 27, 2012

Our Opinion, Part I: Pennsylvania faces tough choices in covering retirement costs

By Staff
New Castle News

NEW CASTLE — With his current term reaching the halfway point, Gov. Tom Corbett is preparing his political agenda for the next two years.

And because many of his priorities deal with budget matters, they are, by necessity, interrelated.

But one area highlighted by the governor and his staff during a session yesterday with journalists from Community Newspaper Holdings Inc. newspapers — including the New Castle News — was Pennsylvania government’s pension problem.

The problem with pensions is relatively simple. The state is dealing with the consequences of unrealistic finances with its pensions that have lasted for more then a decade. As a result, the state’s two major pension funds for commonwealth employees are significantly underfunded — to the tune of $41 billion.

How did this happen? You can go back to around 2000 for the answer. At that time, a raging bull market on Wall Street had persuaded some people that upward growth was consistent and inevitable. The state’s pension funds were flush. So why not boost benefits?

The answer came in the form of serious shocks to the stock market, particularly around the Sept. 11, 2001, terror attacks and the economic slide known as the Great Recession. Suddenly, all the anticipated pension money wasn’t there.

And rather than deal aggressively with the problem, Pennsylvania — like many states — chose to downplay it, perhaps hoping the market would roar back and conceal some reckless choices.

That hasn’t happened. While the situation with stocks has improved, the gains haven’t closed the pension gap. Most attempts to address pension issues in Pennsylvania since 2001 have merely delayed the day of reckoning, not helped the situation.

And as is the case with most government pensions, Pennsylvania’s consists of what are known as defined benefit programs. That means regardless of how the market performs, state government retirees receive a guaranteed benefit.

Who makes up the shortfall in state pension funds if the stock market fails to perform as hoped? Look in the mirror. Responsibility falls to taxpayers.

Pennsylvanians may take some comfort in the fact Corbett continues to oppose any tax increases in the state. But pension costs must be covered. And with pensions being a substantial area of the budget, with expenses rising faster than anticipated revenues, that produces consequences.

Specifically, rising pension expenses squeeze out other government programs. Doing nothing with state pensions will eliminate desired funding in other areas.

That creates an incentive for Republicans and Democrats alike in Harrisburg to hammer out meaningful pension reform. We’ll look at some of the options tomorrow.