HARRISBURG - Gov. Tom Corbett will meet with the General Assembly over the next several weeks to hammer out potential solutions to the looming pension crisis that Pennsylvania, like other states, faces.
But, "there is no silver bullet to address it," Corbett said Monday when the governor and his staff had a sit-down meeting with journalists from the Sun-Gazette and The Express where he outlined the causes of the pension crisis, potential consequences and some of the options to meet the dilemma head-on.
The state faces a $41 billion unfunded liability that it has incurred through a series of what could be characterized as fiscally unwise legislative choices through various acts, and the unfortunate downturn of the stock market over the past decade since the pension systems are significantly funded - 71 percent - by investment earnings.
What that boils down to, if nothing is done to fix the pension problem, is each household's share of the unfunded liability will be $8,000.
Even though the market was one of the driving factors in derailing pension funding, the market cannot be the sole mode of recovery, even if it was in a healthy upswing for the next 20 years, said Pete Tartline, deputy secretary of the governor's office budget.
It must be fixed legislatively.
Corbett said he has remained true to the issues he ran on and will continue to do so.
"I ran on a simple thing: more jobs, less taxes," Corbett said.
He cited the 175,000 new jobs in the private sector created during his administration, and even in the face of the pension crisis he does not want to raise taxes.
Tartline said that along with examining how the other 45 states are reforming their pension systems, they will look at creating possible structural changes to the systems, benefit changes to employees, accrual, retirement age and other factors, and risk-sharing opportunities.
As part of their pension reform efforts, several states have increased member contributions. Some have increased retirement age as even a few years can give significant savings. As for accrual rates, changes in the basic pension formula (including years of service and salary) calculations can lend stability.
Giving employees "early outs," or the ability to retire without penalty also would be useful. Creating a system that would evenly balance the risk between employees and employers would lend stability even in economic downturns. Finally, changes in the term over which average salary is calculated, the elimination of overtime pay, or capping the retirement benefit could yield long-term sustainability, according to a 2012 pension report produced by Charles Zogby, state budget secretary.
Pension reform and relief is key to addressing the public funding crisis - which is driven by rapidly rising pension costs, according to the report. Ultimately, it is the taxpayer who shoulders the cost of the system through their tax dollars.
Core programs also are in jeopardy due to the pension crisis.
"The commonwealth's growing pension obligations are crowding out funding for their children's basic and higher education, public safety, health, human services, the maintenance and repair of roads and bridges, environmental protection and other core governmental programs," according to the report.
So without doing harm to retirees, respecting current employees and without raising taxes, the Corbett Administration seeks to work with the Legislature to stem the tide of oncoming fiscal and budgetary consequences - which will come if nothing is done.
What it comes down to, said Jay Pagni, director of communications, governor's budget office, is setting priorities.
"The administration and Legislature must come together and address this," Pagni said. Changes must be addressed legislatively because the pension system is a statute, he added.
The projected revenue increase for the fiscal year 2013-14 budget is $818,700 in the General Fund, but the expenses column outweighs the revenue at $1.315 billion - and 62 percent of the revenue goes toward pension growth. The items that make up the expenses include medical assistance, debt service, corrections and largest of all, pension systems.
And the pension systems essentially are the only item they can really influence; the rest are rather static, Tartline explained. Pensions also are the main factors that cause the budget to increase, he said.
If nothing is done to reform the pension systems, nearly two-thirds of the General Fund revenue growth will "go out the door to pensions" in fiscal year 2015-16, Pagni said. And, of course, it puts a sort of strangle hold on other programs since those dollars are largely going to pensions.
Corbett described this dynamic as a "tapeworm or Pac-Man" eating away at the state's budget, an acknowledgment that growing pension costs are severely undercutting the state's ability to fund essential programs and services."
Despite the essential role pension funding plays in the budget, Corbett does not rank his priorities.
"Pensions, education, privatization ... I don't rank them," Corbett said, due to revolving factors in the Legislature and timing.
As the various programs compete for limited tax dollars, the state must first pay capital debt service obligations; next, pension obligations; and third, any federally mandated match for entitlement programs, according to the report. Only after all these obligations are met can funding go to other programs and services.
Once the above programs are paid, there aren't enough dollars left to fully fund the remaining General Fund programs - which means having to cut as much as $500 million to balance the budget for 2013-14.
The path that the legislative acts and economic downturn have weed-whacked is clear in the too-near horizon: a choice between "either fully funding pension obligations or making cuts to the core functions of government on which our citizens rely," according to the report.
Corbett said that while there is no agreement at this point on what the structural changes will be, it is conceivable to change the benefits structure for new and current employees, effecting short- and long-term budgetary relief.
