PA's pension load
Where will PA get billions to plug the pension funding hole Harrisburg created?
A decade ago, in an act of classic political irresponsibility, then-Gov. Tom Ridge and a solid bipartisan majority of the General Assembly in Harrisburg boosted their own (and other future state and school retirees') pensions, while cutting the public subsidies that guarantee future checks for 250,000 retirees..
Result: "Over the past ten years, SERS has paid out almost $18.2 billion in benefits and expenses," while bringing in just $10 billion in net investment income, $3 billion in direct taxpayer "contributions", and $1.6 billion in taxpayer-funded "employee contributions," as SERS chairman Nick Maiale, a Philadelphia lawyer, lobbyist, and Democratic committeeman, wrote in a letter to state House members today.
So the state pension investment portfolio is now smaller than it was back then ($24 billion, vs $27 billion.)
To fill the growing gap between pension assets and future payments, Pennsylvania's direct payment to SERS alone, $343 million last year, is scheduled to rise to $1.8 billion next year, under existing state law, even if the stock market continues to recover. The PSERS payment would rise even more. The result will be a big jagged hole in Harrisburg's budget; since PSERS is partly financed by local school districts, we're also looking at higher property taxes across the state.
"There are two different problems," SERS spokesman Robert Gentzel told me. "One is the pension funds' need for more money to make up for the past decade of both consistent and deliberate underfunding... The other problem is the budget strains facing the state and, with regard to PSERS, local school districts."
What to do? Pennsylvania judges, SERS members, have made it hard to cut public pensions, even for people who haven't earned them yet. Pennsylvania politicians, also SERS members, are also reluctant. Yet the state's tight budget leaves little room for higher pension "contributions". Past laws have put off future payments, in hopes markets will recover. That hasn't worked.
"Anything you do to protect the budgets from pension rate increases tends to (worsen) the pension underfunding," says Gentzel. Also "vice versa."
We'll see if Gov. Rendell has a recommendation in his last yearly budget message next week.