Brubaker, Ross unveil pension reform legislation with Corbett’s support
By Kimberly Hess
Sen. Mike Brubaker (R-Lancaster) and Rep. Chris Ross (R-Chester) were joined by Gov. Tom Corbett and other legislators and advocates to announce the introduction of comprehensive pension reform legislation. The legislation mirrors the governor’s proposal first introduced in the February budget address.
Budget Secretary Charles Zogby remarked rising pension costs are threatening to swamp school district budgets and force property tax increases. He stated pension reform is needed now and said he, and the dozens gathered on the stage, are committed to advancing reform through the General Assembly.
Sen. Brubaker remarked the financial status of pension system is not simply a flat tire, but is a broken axle and called for action to repair the system. He said legislators need to educate themselves on the challenges and address the issues, pointing out that unfunded liability is projected to be more than $60 billion. He noted action that has been taken to ease the burden, such as the enactment of Act 120 of 2010, but argued that action was just the first step of a multi step process.
“Today we enter step two,” Sen. Brubaker said, adding that he will be introducing legislation containing the governor’s pension reform proposal, which was first introduced in the February budget address. He characterized the proposal as the most comprehensive pension reform plan in the country and emphasized that the proposal does not seek to reduce benefits of retirees or touch already accrued benefits. The proposal looks to reduce future benefits of school and state employees, including legislators, that have not yet been earned, he said.
In a release, it was explained that the legislation:
Sen. Brubaker, who chairs the Finance Committee, announced he expects the committee to hold a hearing on the proposal in the near future.
He also pointed to the many stakeholders gathered on the stage in support of the proposal and recognition that comprehensive reform is essential. Among the stakeholders, he noted the attendance of the Commonwealth Foundation, Students First, the PA Chamber, NFIB, Manufacturers Association, PICPA, and many school officials.
Rep. Ross remarked this is not an “us versus them situation” because every teacher and every state employee is also a taxpayer. He said if the legislature does not address the pension crisis, the state runs the risk of forcing taxes dramatically higher coupled with substantial cuts in government service. He praised the course of action of Act 120, but lamented it lacked a mid-term solution.
Today’s proposal, Rep. Ross stated, provides short-term, long term, and mid-term provisions. In the long term, he said, the current defined benefit plan will be shifted into a defined contribution plan into which all new employees hired in 2015 onward will be automatically enrolled. He indicated a defined contribution plan is preferable because it is more predictable for the state.
In the midterm, Rep. Ross continued, the plan implements changes for current employees in future benefit accrual, capping the amount that counts toward it at the Social Security wage base, the final average salary calculation will be based on the last five years of employment for more fair snapshot of salary with limit of 110 percent of the average of last four years, the withdrawal is recalculated, and the multiplier is reduced by one-half of a percent for all members regardless of class. He pointed out that those employees who have been in the system the longest and are the nearest to retirement will see the least effect. He also noted employees will have the option to buy up to get the existing multiplier.
Lastly, Rep. Ross said the plan provides for the near-term by reducing the contribution collars of Act 120 and allowing time for the expected litigation to work through the courts.
Rep. Ross concluded saying it is critical that the state deal with short, medium, and long term solutions, acknowledging that it will take a take concerted political effort to address the problem, but failure to act will lead to very serious problems very soon.
Sen. Pat Browne (R-Lehigh) opined one of most important services provided by government is the proper maintenance of the compensation package provided to public employees and ensuring that it does not place an excess burden on those that government is accountable to. He argued it is appropriate that the state amend benefit accruals and pointed out that the proposed change in the multiplier will still provide a replacement income, when coupled with Social Security, above 100 percent and above where experts in financial planning recommend. He emphasized this plan is not about putting people in a place where they cannot replace their income. Sen. Browne said the new approach proposed in the legislation will ensure the possibility of debt will be eliminated in the future and is the only means to ensure no burdens are put on the backs of taxpayers. He concluded the plan will benefit all, especially taxpayers.
Sec. Zogby introduced Gov. Corbett, pointing to the “unprecedented” number of legacy challenges that the governor inherited when he was sworn in.
Gov. Corbett noted several other states are facing the same issues and said he has been crisscrossing Pennsylvania to talk about the pension crisis and host meetings that have served to open the eyes of the public to the problems and need for action. He argued the time has come to make changes on behalf of taxpayers because the cost of doing nothing is “absolutely staggering.” The governor stated pension costs are crowding out dollars for other vital programs and without reform, pension obligations will consume more than 60 cents of every new revenue dollar over the next several years. Additionally, schools will be forced to forgo investments that benefit students, forced to lay off teachers, forced to raise taxes just to pay pension costs. He said more than one-third of school districts have applied for exceptions to increase property taxes and reiterated risks will continue to grow if action is not taken.
Gov. Corbett stated the unfunded liability is currently $47 billion, which amounts to more than $9,000 per household, and that is expected to grow to $65 billion, or $13,000 per household, by 2018. Faced with that cost of doing nothing, the governor opined the proposal is “fair and reasonable” and will protect retirees. He emphasized current retirees will not be affected and stated the proposal provides a strong retirement benefit to all employees, ensures the pension systems are sustainable, and sets us on a path to pay off the debt sooner and to free up funding for other priorities. He said the plan will save $138 million for school districts this year alone.
Sen. Scott Hutchinson (R-Venango), Rep. Brad Roae (R-Crawford), Rep. Fred Keller (R-Snyder), and Rep. John McGinnis (R-Blair) were also in attendance.
The governor and legislators then answered questions from the media.
What do you tell school districts of the chances of this getting through?
Gov. Corbett said he is asking school districts to help him convince legislature and taxpayers that this action is needed. He reiterated school districts are asking for waivers to increase taxes to pay pensions. Rep. Ross added the subject of pension reform is not a new subject, pointing out the governor first proposed this plan in February plus the issue has been discussed in various meetings and during the vetting of Act 120. He argued the elements of the proposal are well known and the course of action now is simply a matter of building support. He said the legislature has time to pass pension reform before the end of June, but if it does not, work will resume in the fall. Sen. Brubaker opined there is “no doubt” pension reform will be enacted, but the question is when and what form. He argued this proposal is an innovative, bold plan and is the right thing to do. “It is simply necessary. For us to take no action makes the solution in the future more difficult,” he argued. Sen. Browne added a lot of the provisions of the proposal were included in Act 120 but they did not apply prospectively to current members.
How is it not unconstitutional to change the benefits prospectively?
Gov. Corbett explained that so far the process of the law has been based upon retroactivity to the benefits whereas this proposal is a prospective change. He remarked on the need to look at the benefit for the greater good and pointed out the proposal provides for direct appeal to the supreme court. The governor also noted an employee could choose to buy up to the current multiplier.
The proposal was first introduced by the governor in February and now it is May. What took so long?
Gov. Corbett reiterated he has been out garnering support from the public and the media. Rep. Ross added the House set up a task force to look at the aspects of the options, but he has determined that the governor's initial proposal is the most complete, most effective option on the table. He conceded it is painful, but opined it is the right thing to do. Sen. Brubaker pointed out both public pension systems, SERS and PSERS, are “ships in an ocean of icebergs” and it took time to fully understand the dangers, but he indicated the numbers clearly show current structure is economically unsustainable. He was optimistic that the Finance Committee will support the proposal.
Considering recent projections, how much more important is it that action be taken?
Gov. Corbett replied the projections make it even more gravely important. He noted he met with leadership yesterday regarding the process for the next few weeks and reiterated the projections heighten the reason this has to get done.
You have eight weeks to complete pension reform, transportation funding, liquor privatization, and the budget. Which is the priority? It has been historically impossible to get four big items in that time.
Gov. Corbett countered he wants and needs all four priorities, and pointed out that a lot of the work has already been done behind the scenes. Rep. Ross remarked, “We can run more than four bills in the month of June” and will try and make sure these are some of the four.
Do you have union support?
Gov. Corbett said he has talked with some unions and he does not believe any are supportive. He acknowledged their position, but said he is looking to the future and has to “deal with this freight train coming at us.” Rep. Ross added that he has been contacted by more than 700 teachers and state employees and he will be talking directly to each one to present the case. He remarked school and state employees are taxpayers too and they do not want to see their colleagues laid off or class sizes increased. Sen. Brubaker said he has look at examples of how pensions will be affected and concluded it is a “relatively modest reduction” in overall income to the retiree in the end with reduced liability to the commonwealth. Gov. Corbett pointed out most of the private sector has transitioned to defined contribution plans, including most if not all private sector unions.
Is it disingenuous to blame the economy as opposed to the pension increase of 2001?
Rep. Ross called that “my worst vote,” but declined to assign blame. He said defined benefit systems are inherently open to sudden changes and argued the most important question is what will the state do to avoid negative impacts in the future. Sen. Brubaker pointed out the recession of 2008 accounts for 50 percent of the unfunded liability and suggested if it happened once, this could happen again and it is prudent to learn from the past and create a plan which isolates the state from market risk.
What would you say to people who say liquor has a priority because it moved first?
Gov. Corbett pointed out a variety of bills have been introduced across the board and a lot of staging, educating is going on in the background. He argued order of introduction does not mean order of priority.
It is been close to a month since Department of Environmental Protection (DEP) Secretary Krancer resigned and no one has been running the department fulltime since then. Is that a priority?
Gov. Corbett said he is looking at candidates, but has great confidence in Chris Abruzzo, his deputy chief of staff who has been serving as acting secretary since Krancer’s resignation. He confirmed Abruzzo is part of his staff, but has been assigned to act as secretary and is “basically full time” in that capacity. His other duties have been picked up by others.
What is your view of the sentence of Justice Joan Orie Melvin, of three years of house arrest and a letter of apology, and what is your timeline to name a replacement?
Gov. Corbett indicated this was the first he heard of the sentence and declined to comment. As to a timetable, he said he has a certain period of time to submit a name and he is in the process of reviewing candidates.