February 6, 2017
Pennsylvania isn’t the only state with underfunded pension systems that are driving up taxes while diminishing government services, although its systems are among the worst.
Particularly troublesome regarding the Pennsylvania pension crisis is that lawmakers created it but refuse to fix it.
In 2001 legislators gave themselves a 50 percent — yes, 50 percent — pension benefit increase. In a deal with the Ridge administration to establish a controversial school choice program, lawmakers cut in public school teachers, state employees and the judiciary for 25 percent increases — yes, 25 percent. Then, a year later, they cut in retirees for benefit increases,even though those employees retired with what were supposed to be fixed benefits.
So, everybody was happy except taxpayers, who did not need accounting degrees to understand that they were going to pick up the tab.
Legislators actually believed that investment returns would cover the increases, to the point that they further accelerated the fiasco by declining to make the state government’s required contributions to the plans, and advising school districts to do likewise. Meanwhile, lawmakers’ promises that investments would pay for the party have evaporated after not one, but three recessions.
Faced with runaway costs and soaring school property tax bills, legislators have tinkered with the pension plans. They have stretched out the costs for 30 years, increased employee contributions, altered some withdrawal standards and imposed some benefit reductions for future employees — those who haven’t yet been hired.
They have not, however, reduced their unwarranted benefits to what they were in 2001. This, they say, is because the state constitution precludes them from reducing compensation.
But that is a rhetorical excuse. The rule means that they cannot reduce benefits that state employees and teachers already have earned. To say that they cannot adjust benefits yet to be earned defies simple economics and more firmly establishes them as a completely separate class of citizen, the political class.
A new study by the Center for State and Local Government Excellence points out that 25 percent of the states tackling pension reform include benefit adjustments, going forward, for current employees.
To truly correct the misfeasance that the Legislature committed in 2001, current lawmakers must include benefit reductions for current workers to the already generous 2001 level.
If the state constitution is written to serve lawmakers’ ability to keep their unwarranted pension benefits, it should be amended.