Pension updates needed by June
HARRISBURG – Lawmakers need to reduce taxpayers’ share of payments into Pennsylvania’s major state pension funds in the next few years even if the rest of Gov. Tom Corbett’s pension-overhaul proposals bog down, the governor’s top budget adviser said Wednesday.
Budget Secretary Charles Zogby said Corbett’s $28.4 billion state budget plan for the year starting July 1 includes $175 million in savings from a proposed short-term reduction in taxpayers’ contributions to the pensions of hundreds of thousands of state and school employees. Similar deferrals would avert sharp increases in the following two years.
Failure to approve the changes would require cuts elsewhere in the budget, he said.
“It’s imperative that we leave here in June with something on pension reform that’s going to deal with the immediate effects of this coming budget as well as the next couple of budget years,” Zogby said at a news briefing about the governor’s plan.
Corbett’s pension initiative has yet to be introduced as legislation nearly two months after he unveiled it, and the reaction from legislators has been cool at best.
Yet Zogby and James Schultz, the governor’s chief counsel, talked about the package as if it is not only likely to pass but also likely to be upheld in the courts.
“There’s an interest all the way around in having [a] once-and-done solution,” Zogby said.
The chairman of a House Republican task force working on the pension issue said he could not support deferring pension obligations for short-term savings.
“I don’t have much appetite to do that because that’s what we’ve done for years – under-funding the pensions to pay for other stuff,” said Rep. Glen Grell, R-Cumberland, whose district includes a large number of state employees.
The most radical changes in Corbett’s plan would reduce the future pension benefits of more than 370,000 members of the Public School Employees’ Retirement System and the Pennsylvania State Employees’ Retirement System to save $12 billion over 30 years.
Unions representing the employees have vowed to sue if the changes are approved, and their leaders say decades of case law are on their side.
The combined unfunded liability of the two systems is more than $41 billion.
State courts have established that public pension benefits are contracts and that the state constitution prohibits changes that impair those contracts, but the administration says those rulings have included the retroactive effect of changes.
Corbett’s lawyers hope to take benefits already earned out of the equation by freezing them when the changes take effect in 2015 and crediting employees for the full value up to that point. By doing that, they hope to limit the scope of any court review to the newly reduced benefits and whether the changes had an important public purpose.
“We believe we have a very strong argument, and a winning argument, on the constitutionality” question, Schultz said.
Corbett’s proposal is clearly illegal, said Michael Crossey, president of the state’s largest teachers’ union, the Pennsylvania State Education Association.