Public pensions finally are getting attention as a fiscal crisis looms
This week's series of front-page stories on public employee pensions, which appeared in the Butler Eagle and newspapers across the state, should be an eye-opener to every taxpayer in the state. The future tax burdens associated with the promises made in the form of public employee pension benefits could soon impact every state taxpayer. And without dramatic changes, that impact could be devastating.
Pennsylvania is not alone in struggling with looming pension payments to public employees. Other states and many municipalities face similar crises in which promises were made that now appear to be threatening unreasonable burdens on taxpayers.
But costs associated with public pensions have been, until recently, something of a hidden cost, at least to most taxpayers. Pension payments occur far off into the future, so it sometimes is hard to comprehend the long-term costs.
But pensions are simply deferred compensation, and increases in pension benefits, such as those Pennsylvania's state lawmakers gave themselves and teachers in 2001, are nothing more than a deferred pay raise.
Seen in that light, Pennsylvania taxpayers should understand that the state legislature's controversial pay-raise vote of 2005 was nothing compared with the so-called pension grab of 2001.
The Associated Press' series of articles noted that as a result of the Harrisburg pension grab, state taxpayers' contribution to the pensions of state workers and school employees will jump from the current $1 billion-a-year level to about $3 billion. It is hard to imagine how taxpayers and school districts will be able to handle such a burden.
In the private sector, pensions and retiree health care costs are called legacy costs. And those costs have caused painful corporate restructurings, including many bankruptcies, especially in the steel and airline industries. And, the domestic car industry is facing similar challenges.
Declaring bankruptcy and dumping pension obligations on the federal Pension Benefit Guaranty Corporation (which then pays significantly reduced benefits), as several steel companies and arlines have done, is apparently not an option for Pennsylvania. But something nearly as radical, such as lawsuits to declare the 2001 pension grab unconstitutional, should be considered.
In too many cases, pension benefit promises were made without any understanding of the future costs of those promises. In some cases, promises appear to have been made with no concern over the future impact on taxpayers.
In the case of the Harrisburg pension grab, state lawmakers noticed that the two pension funds covering most Pennsylvania public employees had built up large surpluses during the bull market of the 1990s' dot-com frenzy on Wall Street. But instead of taking a prudent approach and allowing those surpluses to remain as a financial cushion, lawmakers took the selfish approach and grabbed the extra money for themselves and other state employees in the form of future pension benefits.
The 2001 action, which was in many ways handled in the same stealthy way as the 2005 pay-raise fiasco, gave a 50 percent increase in pension benefits to lawmakers, and a 25 percent increase to public school teachers.
If the pension grab of 2001 had happened after the pay-raise vote of 2005, there might have been enough public outrage to force a reversal, as happened with the legislative pay raise. But in 2001, fewer people were paying attention to the General Assembly's self-serving, late-night deal-making.
The full financial impact of the state legislators' pension grab must be understood by voters, and public pressure must press for reforms such as a longer vesting period, raising the eligible retirement age well past 50, and a transition to a 401(k)-type program.
The taxpayers of Pennsylvania cannot be expected to pay for pension benefits that are much more lucrative than benefits in the private sector. Taxpayers should not be held accountable to pay for benefit promises that not only are out of line with other states and the private sector, but promises that were made by the very people slated to receive those benefits — state lawmwkers.
While the state Senate's newly elected president pro tempore, Republican Joe Scarnati, is on the right track in suggesting that state employee pensions should be brought in line with private industry, many lawmakers cannot be trusted to make meaningful reforms — because such reforms would reduce their own future pension checks.
When Gov. Ed Rendell and Republican House leader John Perzel express concerns about the issue and appoint panels to study the coming pension crisis, it's hard to take either of them seriously — especially Perzel, a major supporter of the pay-raise package who has proven himself to be far more interested in the well-being of himself and other lawmakers than of ordinary citizens.
More will be written about the pension crises facing Pennsylvania and other states.
The issue has been invisible to most people and ignored by many people in the know.
Now that it is receiving attention, serious action is necessary. And, that action should examine reversing the pension grab of 2001 through legal or legislative action as well as rolling back promises, pushing back the age for eligibility well past 50, extending the vesting period and other measures.
Once voters understand the implications of the pension crisis facing every taxpayer in the state (read the AP articles), the same outrage that forced action on the 2005 pay-raise vote should demand relief — solutions other than future tax increases.
