2009-04-30 / Local & State

Bill Soon Due To Taxpayers For Pensions

By Mark Scolforo ASSOCIATED PRESS WRITER

HARRISBURG, Pa. (AP) - Pennsylvania's day of reckoning over its multibillion-dollar pension promises to government employees and teachers has been pushed back for the better part of the past decade.

But long-expected increases in costs are scheduled to kick in three years from now, and meeting those retirement obligations could cripple state government and school boards.

Depending on what happens in the stock market, taxpayers could soon find themselves stuck paying more than $5 billion in additional annual payments.

The figure is a moving target. But in a March presentation to a state House panel, the state's two large public-sector pension plans estimated that the $821 million a year they currently get in "employer contributions'' - the vast majority of it from taxpayers - will need to grow to $5.7 billion a year by 2012.

Even more frightening is that those numbers involve assumptions that could be overly optimistic. For example, the state government pension system's numbers assume it will earn 8.5 percent this year, but its 2009 investments are currently about 6 percent in the red.

The Bloomsburg Area School District last week offered a sign of how bad things may get for the property owners who pay about half of the teachers' pension subsidy. To cope with its growing pension liability, Bloomsburg officials are talking about imposing eight straight years of tax increases.

"Are there things that can be done to sort of ease the slope of the increase? Probably so, but there's nothing to be done that can make the unfunded liability go away.''

There is plenty of blame to go around for this potential slowmotion train wreck, not the least being state lawmakers' unwillingness to face up to the consequences of their 2001 vote to increase their own pensions by 50 percent.

It was part of legislation that also increased pensions for about 300,000 teachers and state government workers by 25 percent. And in the following year, lawmakers pushed through a costof living adjustment for retirees.

All those fresh obligations triggered a sudden need for massive taxpayer support, so in 2003 the Legislature and Gov. Ed Rendell - then in his first year - struck a deal to rejigger the financial structure of the pensions to delay the problem for a decade.

That decade is rapidly coming to a close, and although the pension systems have reaped impressive returns for long stretches of the intervening years, more recently they have both been hammered mercilessly by the drop in the equities markets brought on by the international economic downturn.

The Legislature and Rendell could have eased the pain by making larger contributions into the pension systems, but chose not to.

As recently as last June, then- Budget Secretary Michael Masch called for higher payments into the systems, warning that failing to act would likely result in a crisis in 2012-13. The budget that passed a few weeks later did not address the pension shortfalls, and the current budget debate centers on how to fill a $2.3 billion hole - not on spending that might make it larger.

"It's the fault of those greedy fellas on Wall Street who put us in the worst recession we've had since the Great Depression,'' Rendell said last week. "Had that recession not come we were prepared to make significant ... resources available to help the pension funds. We're also working on a long-term plan which will make the impact of it less severe in 2011.''

Despite the potential for catastrophe, several bills have been introduced in the current legislative session that would either provide cost-of-living increases to current retirees or an incentive for current workers to retire early.

As chairman of the Senate Appropriations Committee, Jake Corman said the pension crisis makes it even more important to get the state's spending under control and not pass a stopgap budget that will drain reserves and limit future flexibility.

He said pumping money into the systems probably won't solve the 2012-13 problem, but it would increase cash flow, which is important for systems that require a certain amount of liquidity to pay benefits and other expenses.

Corman, R-Centre, said he sympathizes with the person who will succeed Rendell in January 2011.

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