2009-12-24 / Front Page

Pension Time Bomb Set To Explode In 2012

By Mark Scolforo ASSOCIATED PRESS WRITER

HARRISBURG, Pa. (AP) – The optimistic sorts amid the ranks of Pennsylvania lawmakers have long been hoping that Wall Street gains would help solve a problem that legislators did much to create – the pension funding crisis that looms just over the horizon.

While it’s still possible that the two large public-sector pension funds will be able to rake in substantial investment returns between now and 2012, when the real pain is scheduled to begin, this holiday season has brought fresh reasons for concern.

The Public School Employees’ Retirement System, for teachers and other school workers, and the State Employees’ Retirement System, which mostly serves state government workers, gave a sobering joint presentation to the Senate Finance Committee last Wednesday.

The updated numbers they presented were ugly, and quite ominous for the taxpayers who ultimately guarantee that the benefits that have been promised will in fact be paid out. Even though the equities markets have swung upward this year, both funds were severely devastated by the recession-driven downturn.

The teachers’ pension fund fell from $67.2 billion in mid-2007 to $46 billion at the end of September. The state workers’ pension fund, which had a market value of nearly $36 billion in 2007, was under $24 billion by Sept. 30.

Decisions that were made about a decade ago are coming back to haunt the governor and Legislature.

In 2001, the General Assembly got Gov. Tom Ridge to agree to increase pensions for most state lawmakers by 50 percent, and in doing so they also bumped up pensions by 25 percent for some 300,000 active state workers and teachers. It breezed through both chambers overwhelmingly, with no floor debate.

Retirees, left out of the deal, clamored for their own raises, which were approved in 2002 at an estimated cost of $1.7 billion.

The final twist was in 2003, Gov. Ed Rendell’s first year. In the face of substantially higher mandatory pension payments for state government and school districts, he and lawmakers struck a deal to push back paying most of it for 10 years.

That is why the year 2012 has become paramount.

It may not mean much to taxpayers when they get clobbered with higher property taxes and state taxes, and see their services cut as well, but in fact they have been paying far less than the true cost of the public sector pension plans during Rendell’s tenure.

Last week’s Senate Finance hearing was particularly frightening because the two funds put dollar figures on the 2012 problem, which, incidentally, is often described as a spike but is more accurately seen as a higher plateau of payments that stretches decades into the future.

Consider this: the largely taxpayer funded “employer cost’’ for the teachers’ pension system, which is roughly half local property taxes and half state budget money, is currently projected to increase from about $617 million in the current fiscal year to $4.2 billion in the fiscal year that ends in June 2013.

It then climbs steadily before topping out at $6.4 billion in 2032.

The state workers’ pension system tells a similar story.

The 2009 employer cost is about $344 million. That jumps to $1.8 billion in 2011 and $2 billion in 2012 and reaches $2.6 billion in 2030.

In other words, today’s taxpayer cost of less than $1 billion will be more like $6 billion in about three years.

Senate Finance Chairman Pat Browne, R-Lehigh, said pensions are undoubtedly one of the state’s most important issues.

“In this assembly there’s an understanding that if our current challenges are left unaddressed, it will cause a serious reprioritization of our budget obligations toward services and initiatives that we all find important,’’ Browne said.

In fact, that scenario is very likely to materialize even if the General Assembly does take drastic steps.

There is also talk of issuing pension obligation bonds, using federal money or a new version of the financial structure changes that Rendell and lawmakers imposed in 2003.

Such moves may provide limited help, but pension officials warned senators not to hope for a silver bullet.

Shifting payments into the future would add to overall costs and will not make the problem go away, said Bob Gentzel, spokesman for the State Employees’ Retirement System.

‘’It’s a debt that incurs interest the longer it sits there,’’ Gentzel said. “There’s no free lunch.’’

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