by Rep. John D McGinnis (R-Blair County)
For more than 10 years, taxpayer dollars in Pennsylvania have been improperly diverted to other ends from funding the state pension systems, SERS and PSERS. If a corporation misappropriated retirement funds in this way, its executives would be put in jail and justly so. But in state government, legislators write the laws and governors carry them out, so any bad, irresponsible behavior can be made perfectly legal.
The PEW Foundation reports that Pennsylvania is 49th in funding its public employee pensions with only New Jersey doing a worse job. Some of the consequences of this inter-generational theft are obvious such as the spate of downgrades of the commonwealth’s credit rating over the past two years. Young people are becoming our commonwealth’s chief export. And since legalized underfunding is still underfunding, the constitutional requirement of an annual balanced budget has been violated every year since 2003.
But much worse is in store as a financial catastrophe looms. There are numerous studies indicating that the investment assets of SERS and PSERS will be depleted in the next ten to twenty years. When D-Day (Depletion Day) arrives, all of the payments earned by retirees will have to come out of the general fund. In that event, more than 40% of the general fund, in perpetuity, would be paid out to retirees, leaving a greatly impaired budget to cover the continuing functions of government and education.
There is a solution to this problem and it is House Bill 900. HB 900 is a funding schedule that follows the recommendation of the 2014 Blue Ribbon Panel on Public Pension Funding commissioned by the Society of Actuaries. It will require that the unfunded liabilities of SERS and PSERS be paid off over 20 years with level dollar funding and all newly earned benefits be fully funded.
To be sure, this is not going to be easy. It will require total state and school district pension contributions to go from about $4.1 billion in the current fiscal year to $6.6 billion starting in FY 2016. And roughly that level of annual contribution will remain in effect for 20 years at which time SERS and PSERS will be fully funded and Pennsylvania’s future secure.
Where will the increase of $2.5 billion come from? The increase will come from either new revenue sources or re-directed current revenues or some combination of the two. That is a question for the appropriations process and one that will be answered through budget discussions when HB 900 becomes law. But the imperative of properly addressing the unfunded liabilities of SERS and PSERS in a timely manner cannot be overstated.
For those who say that’s just too hard to do at the moment, well, they need to explain when it will become easier. Albert Einstein said that compound interest is the most powerful force in the universe. If you are on the investment side of compounding, indeed, it is. But our state pensions are on the debt side to the tune $55 billion and that is compounding at 7.5% per year. It is dereliction to allow this massive burden on our children and their children, the very future of Pennsylvania, to continue to grow. It simply becomes a more difficult problem each second we dally.