State pension report re-emphasizes urgent need for reform
The state Office of the Budget released its report Monday on the commonwealth's public pension crisis, which tops $41 billion in unfunded liabilities.
The report outlines the current pension situation and how the situation got to this point, along with the impact on the state's budget and the need for structural reforms.
"Absent meaningful structural pension reform, the state's General Fund budget is on a very predictable path that will force a choice between either fully funding pension obligations or making cuts to the core functions of government," Budget Secretary Charles Zogby said in a statement.
Employer contributions are slated to rise at a feverish pace in the coming decade to address the current cost of pension benefits, as well as the unfunded liability. Policy makers this year introduced legislation that would address the former via a move to a 401(k)-style system.
The latter was not addressed in that legislation, which has to be reintroduced in the 2013-14 legislative session.
Revenue growth is expected to be nearly $819 million next year, Zogby said. However, pension costs are projected to claim about 62 percent of that amount.
Meanwhile, the state has other mandated costs that also are expected to rise. Those costs are tied medical assistance, debt service and corrections. Those cost drivers, including pension obligations, add up to more than $1.3 billion in 2013-14, Zogby said, which means a $500 million shortfall.
The pension crisis also threatens public education funding as well as public safety and additional funds for roads and bridges.
Absent any reform, the state must continue spending reductions to balance its budget, Zogby said.
"The taxpayers did not create this problem, nor did commonwealth or school district employees. As we move forward, we must keep the taxpayer top of mind and not harm current and past employees," Zogby said. "We will not touch accrued benefits, nor will we allow the pension problem to continue for future generations. We need to fix this problem for the future stability of both the pension systems and the commonwealth's budget."
Shrinking state budgets could shift more of the cost burden to local governments and school districts. That means higher taxes or significant restructuring, making it more difficult to do business in Pennsylvania.
Dealing with pensions, as well as transportation infrastructure funding and liquor store privatization has been listed among top priorities in 2013 for the Republican majority.
Click here to read the full report.
For a full look at the pension crisis, its impact and the reform suggestions, click here to read the Business Journal's special report.