June 6, 2017
Gov. Tom Wolf spoke briefly Tuesday about the pension bill moving toward his desk this week, calling it a "significant start" on what has become one of Pennsylvania's worst political catastrophes.
Wolf acknowledged that Senate Bill 1 will do little to help the funding crunch facing the state or Pennsylvania school districts today and for the near-term future.
But he said the bill - which passed the Senate on a 40-9 vote Monday and is expected to get a House vote by the end of the week - is progress because of the lower long-term risk it carries for taxpayers.
"If you go to more of a 401(k)-style (retirement plan for future hires), you have less risk for the taxpayer and by the time you get to 2037 you actually do have a reduction" in projected expenses, Wolf noted.
"If you don't do this ever, each year, your expense just keeps going out and you don't get to that 2037 (turning point) ever. So this is a big deal, and it really does address the issue," the governor continued.
"And actually over the course of 30 years... it will chop off somewhere between $10 and $20 billion dollars."
The fiscal analysis on the bill says it would produce cumulative savings of $1.4 billion over that time - a reduction of less than 1 percent in the total tax-funded costs borne by the state and school districts.
Wolf's reference appeared to be to what actuaries have said would be a smaller peak in new pension system costs in the event of a sustained period of missed investment targets.
The governor's remarks came after an unrelated speaking engagement in Harrisburg with local chamber of commerce leaders.
For Wolf, support for Senate Bill 1 represents a personal evolution from 2014, when as a candidate for governor he argued there was nothing fundamentally wrong with the design of the state's pension systems.
This week, the main point of the bill heading for Wolf's desk is, precisely, design change.
Achieving a major philosophical goal of Republicans that control the General Assembly, it will move new hires into a plan with a smaller traditional pension based on years service and salary, supplemented by a 401(k)-style benefit like those favored by many private sector firms.
From 2035 through 2050, as the bulk of the state and public school workforce moves into the new system, cumulative savings from Senate Bill 1 will approach $2 billion - that's after a net cost increase of roughly $550 million in the next 18 years.
Wolf said he can support this because he believes the benefits for future hires, while lesser than current levels, will still be fair, and he believes the long-term risk shift from taxpayers to the pension beneficiaries is a worthwhile goal.
"Whoever is governor or school board director in 2037, is going to have a real break," Wolf said.
This governor and lawmakers are left with the pressing issue of how to carry the present costs from a 2001 benefits expansion that - two recessions and several accounting manuevers later - have sent total taxpayer costs from less than $1 billion in 2010 to $6.4 billion this year.
Many districts across the state are raising property taxes, draining reserves, letting class sizes grow above optimal levels, or scrimping on maintenance or other costs as a result.
"This is imperfect," Wolf acknowledged. "And it's the result of a set of compromises in a political system that is divided. But it's a real, real significant start and I think we deserve to get some commendation for making that progress.
"Is there work that we still have to do? Yeah, and I will continue to work on that. But this is a really good start," Wolf said.
To deal with the present problems Wolf has supported, for one thing, a new severance tax on natural gas produced from Pennsylvania's Marcellus Shale reservoir. Some lawmakers have suggested that revenue should be dedicated - at least temporarily - to helping cover pension costs.
Others have suggested that some of the revenue from a next wave of legalized gambling could be devoted to the pension tab.
But those deals appear to be subjects for another day.
Wolf said he sees this reform bill as a stand-alone issue and not part of any larger grand bargain including, for example, a promised floor vote on the tax on natural gas drillers or an increase in minimum wages.
He does hope the bipartisan spirit that surrounded the production of Senate Bill 1 will extend to the final stage budget negotiations.
But, he added, "The real bargain here is that this is good for Pennsylvania. This is something that is not meant to be a quid pro quo for something... I'm doing something that I think is fair to employees.
"I think it actually does have a really good chance of reducing the unfunded liability for the state, and reducing expenses as quickly as possible for Pennsylvanians... And that's not anything that needs to be traded for.
"That's a good thing in and of itself."