Is there hope for a pension fix in the legislature?

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New proposal could form framework for at least a partial fix

By Mike McGann, Editor, The Times
UTMikeColLogoIs it possible that a small glimmer of hope toward finding a real, workable solution to public pension mess is inching forward in the state legislature?

As you’re probably aware, spiking contributions to state worker and teachers’ pension funds have hamstrung the state and local school districts, leading to higher taxes and some reduced services — but finding a fix in the state legislature has been a bit of political football. But a new proposal could form the framework for a workable solution.

This week, Rep. Glenn Grell (R-87) said he would introduce a new pension reform bill that — unlike the spring’s failed effort sponsored by State Rep. Chris Ross (R-158) — would put a lump sum into the two state public pension funds, substitute a cash-balance plan for the current defined-benefit plan and gives current employees the option to lower their current contribution rate, in exchange for concessions on payouts.

While Grell’s plan won’t solve the entire issue — more than a decade of underpayment of the pension funds by the state and local school districts can’t be fixed with any one solution — it seems like a good, common-sense starting point.

Speaking Friday morning at the Southern Chester County Chamber of Commerce Legislative breakfast, Ross expressed some concerns over Grell’s plan — and allowed that even he had some issues with the pension bill he sponsored, and in part agreed to sponsor what he termed as Gov. Tom Corbett’s plan because he felt it should at least get some discussion.

The biggest and most important piece of the plan would require issuing some $9 billion in bonds to sure up the funds, a move that Grell says, because of the current low interest rates, would slash the state’s unfunded liability by about $15 billion by 2030, rather than see it go from the current $45 billion to estimates as high as $63 million over that period.

By moving to a cash balance plan for new hires, rather than a 401K as Ross and Corbett proposed in the spring, funds would continue to go into the pension funds, allowing payment of benefits for existing retirees, while gradually reducing the long-term liability for the state and local school districts. And because the plan would still offer lifetime benefits — albeit at reduced return — employees wouldn’t have to worry about outliving their benefits, as many with 401K retirement plans have.

And as Ross noted Friday morning, this plan is likely to get less resistance from the public employee unions, meaning it could get bi-partisan support.

I’m intrigued by the third element of Grell’s plan — which allows current employees to reduce their contribution (and boost their current pay) in exchange for lower payouts later, including capping the Option 4 lump sum pay out and changing the final salary calculation to the final five years, rather than the current three years. More changes will probably be needed to effect the long-term savings needed to cut future liabilities, but this seems like a good starting point.

Ross also expressed concern that the plan pushes more of the liability onto the state and away from local school districts. Which, to be honest, because it was the state legislature and Gov. Tom Ridge that created much of today’s pension crisis, doesn’t seem as unfair to me as it might sound.

Still, he allowed that it could be a starting point for negotiations — although Corbett has already signaled this week he is uncomfortable with bonding some of the pension liability.

State Rep. Steve Barrar (R-160) — although working his way through Grell’s proposal when I caught up with him Friday — agreed that it could be a good starting point for negotiations.

“I do think we need to do some borrowing,” Barrar said. “I don’t know if $9 billion is the right amount, but we need to address this issue.”

He noted that number might be high, but that the state needs to put back some of the funds it failed to contribute in the 1990s and early 2000s — calling the decision to underfund the pension funds “one of the stupidest things the state has ever done.”

While it may not be perfect, it seems to have some chance of moving forward, if Corbett will get on board.

* * *

As you read this, the federal shutdown continues with no likely end in sight.

Two Chester County U.S. Representatives, Pat Meehan and Jim Gerlach, both Republicans, have called on their party and House Speaker John Boehner to bring the continuing budget resolution already passed by the U.S. Senate to the floor for a vote — which would end the U.S. government shutdown.

About 20 seconds later — well, seemingly — the local Tea Party officially declared them both as Republicans In Name Only (RINOs) and called for their immediate banishment to political Siberia or dispatch to the appropriate re-education camp. Or something like that.

One might call either gentleman a lot of things, but based on their voting history and general philosophy, they kind of seem pretty Republican to me. Of course, then again, were the sainted Ronald Reagan alive today, he’d probably be denounced as a Marxist, as he raised taxes, you know.

In a similar vein, good news, everyone!

The American Future Fund (you have to love ironic PAC names — especially when a group embraces 1890’s GOP dogma) is planning on pouring big bucks into the 2014 Pennsylvania elections to make sure that Republicans, who already control the State House, the State Senate and the governor’s mansion are even more Republicany-good.

Much of AFF’s angst appears to be largely aimed at the state Senate and by inference, Senate Majority Leader Dominic Pileggi, who, generally speaking, is not exactly seen as a paragon of leftist causes.

The high crimes? Agreeing to expand Medicaid (and abetting Obamacare — which as we all know will destroy America exactly the same way Social Security and Medicare have left this country a smoking pile of rubble), daring to want to raise gas taxes to keep bridges from collapsing and failing to pass liquor privatization.

The irony: a lot of observers give the Democrats a puncher’s chance of retaking control of the state Senate in 2014. So, obviously, the best political strategy is to primary a bunch of “too moderate” Republicans and replace them on the ballot with more extreme candidates.

One can only imagine what will happen when AFF delves deeper into the voting history of not just the county’s state Senators, but some of its State House members.

State Rep. Stephen Barrar — not exactly noted as a liberal — has opposed the end of the state’s prevailing wage laws, so by AFF’s standard, he’s a RINO. Ross? He’s been alleged as a RINO for years, being fairly moderate and — gasp — pro choice, but he’s hardly a liberal.

Obviously, I’m having some fun with this, but we’re talking about calling out long-term Republicans with long-term Republican voting records as not being Republican enough.

I have no issue with knocking all of them for inaction on meaningful solutions to the pension mess, our failing roads and bridges, the liquor mess and so on; but it’s a little hard for me to fault any of them for failing to keep lock step with an ideology that about 10% — if that — of the population supports.

This is a state with about one million more registered Democrats than Republicans — it’s a little miraculous that the GOP has managed to dominate state politics with those numbers.

So, obviously, if you’re the AFF, the sensible thing is to drive off moderates and independents, and make it impossible for GOP candidates to win in the Philadelphia and Pittsburgh suburbs.

Good plan.

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2 Comments

  1. Keith Knauss says:

    A bit more about the risks associated with Rep. Grell’s pension obligation bonds from Bloomberg.

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a55YHbUZvMmQ

  2. Keith Knauss says:

    I wonder if Rep. Grell really understands the ramifications of his “fix” to the pension problem. First, he wants to borrow $9B to reduce the pension fund’s $45B liability. Huh?? Let’s see if we can draw a parallel. I still owe $45K on my new car to the finance company. Following Rep Grell’s example I’m going to borrow $9K from the bank and pay off some of the principal I owe to the finance company. Now I only owe $36K to the finance company. But wait, I still have the same amount of debt – $36K to the finance company and $9K to the bank. And if Grell thinks borrowing $9B will help, why not borrow the entire $45B? Smoke and mirrors anyone?
    .
    To be fair to Rep. Grell, the borrowed $9B will be paid back with low bond rates and he’s betting he can get higher returns by putting that $9B in higher risk stock market investments. He’s betting that the market downturns of 2002 and 2008 won’t happen increasing rather than decreasing the problem. Rose colored glasses anyone?
    .
    I could go on about the fallacy of a cash balance plan assuring payments never run out, but I’ll stop here.

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