PA Unions say no changes needed as $47 billion unfunded liability grows

HARRISBURG – For the chairman of the Senate Finance Committee, the big picture is also the bottom line.

The nuts and bolts of pension reform are a complicated mix, which may prevent lawmakers from dealing with the state's $47 billion unfunded pension liability before the end of the budget session June 30. Current employees and retirees must be considered, as well as the ever-present threat the state Supreme Court could strike down changes as an unconstitutional violation of workers' contracts with the state.

But state Sen. Mike Brubaker, R-Lancaster, said Wednesday none of those factors should be an excuse for failing to try to make changes.

"The unfunded liability is evidence to me that we have to do something," he said. "The number is too large."

Brubaker is backing a pension overhaul plan first proposed by Gov. Corbett in February that would save the state in the short-term by continuing to underfund the state pension systems in exchange for long-term savings, which would be achieved by rolling back boosted benefits  granted in 2001.

Unions have pushed back against that plan by calling on the state government to "keep the promise" to public employees and have threatened to sue the state over benefit cuts for current employees.

"We view the contractual obligation as the promises made to us as employees," said Gerard Oleksiak, vice president of the Pennsylvania State Education Association, which represents teachers and other public school employees.

Corbett's pension overhaul proposal comes three years after the state last addressed pension costs with Act 120 of 2010.

In that measure, lawmakers set artificially low contribution rates for a period of four years to avoid a "pension spike" that would have busted the state budget and the budgets of many school districts. It also established a new, lower, level of benefits for employees hired after the bill became law.

But now, Corbett and some Republicans say the payment plan established by Act 120 is too harsh, and further changes are needed.  In addition to a renewal of the lower contribution rates in the short-term, the governor and his allies are seeking to move new hires into a 401(k) style defined contribution plan, which would allow the state to stop adding to an unfunded liability that will grow to more than $65 billion in a few years.

"Each day this plan is open people are earning more benefits that have to be paid in future years," said Budget Secretary Charles Zogby.

With the changes in 2010, the pension funds are recovering and the systems are sustainable despite the massive debt, the union officials told the committee Wednesday.

"When Act 120 was enacted, nobody said more needed to be done down the road," said Dave Fillman, executive director of AFSCME Council 13; he told the Senate Finance Committee on Wednesday the union was "absolutely opposed" to the governor's proposed reforms.

Not true, according to Brubaker.

The day he voted for Act 120, Brubaker, on the floor of the state Senate, said the proposal was "a first step" toward dealing with Pennsylvania's public pension debt crisis.

Still, many lawmakers seem reluctant to act on the governor's plan this spring. Indeed, a budget proposal put forth by House Republicans on Wednesday morning failed to take into account any pension cost changes.

Part of the reason is a concern the overhaul Corbett has proposed will be struck down in court.

Zogby and other administration officials maintain the changes are constitutional because they do not modify benefits for retirees or benefits already earned by current state workers.

But state Sen. Rob Teplitz, D-Dauphin, said the courts would not allow the state to make that change.

"I applaud them for their creativity," he said. "But based on my reading of the law, that is a losing argument."

Even with the governor's proposed reforms, the unfunded liability is expected to grow to about $65 billion within a decade.

That means budget cuts and tax increases at the state and local levels.

One analysis, by the Commonwealth Foundation, a free market think tank, suggests each household in the state will face additional costs of at least $240 annually for the next four years as Pennsylvania pays down its pension costs.

Three weeks ago, Corbett said covering the current liability would cost each state household about $9,000.

Boehm can be reached at Eric@PAIndependent.com and follow @PAIndependent on Twitter for more.