Pension Reform: Consolidation Is Not the Answer

Pennsylvania’s pension funding problem didn’t happen overnight, and you can’t fix it overnight. Recently, there’s been a lot of buzz about pension reform, and rightfully so. Pennsylvania is on the fast track to a crisis.
The commonwealth’s pension programs for some 800,000 state workers and public school teachers are in the hole to the tune of $40 billion, a figure that’s expected to climb to $65 billion by 2021 if lawmakers don’t do something soon.

Hastened by Gov. Tom Corbett, the General Assembly and others are searching for solutions, some of which have come to light during a series of fact-finding meetings hosted by the Pennsylvania Employee Retirement Commission. The hearings have focused on the state’s financial predicament, which may force more cuts in services to fund promised retirement benefits.

It appears the meetings have also served as a stage to exaggerate the degree of Pennsylvania’s pension troubles, with calls to consolidate hundreds of healthy municipal plans to fund the debts of a few. This “redistribution of pension wealth” is a bad idea and penalizes the successful while rewarding those in trouble.

Yes, it’s true that a few local governments, primarily large and midsize cities like Philadelphia, Pittsburgh, and Scranton, have retirement programs that are underwater, too. But it’s inaccurate to paint the picture that every municipal pension plan is troubled, or “woefully underfunded,” as some have suggested.

The truth is, many communities – large, small, rural, urban, and suburban – oversee plans that are doing OK, and in some cases, they’re doing much better than OK.

Proof of this comes from PERC itself, which measures the distress level of the 1,439 municipal pension plans that receive roughly $200 million a year in state aid. The money offsets the costs of state-mandated retirement benefits for local police and firefighters and supports pension plans for non-uniformed municipal employees, too.

What quickly becomes clear from the most recent PERC report is that the number of solvent municipal pension plans significantly exceeds the number of troubled ones.

In 2011, 776 were classified as “not distressed” while just 27, including those belonging to Pittsburgh and Philadelphia, were declared “severely distressed,” a term that means the plans are funded at less than 50 percent of liabilities.

This reality, however, hasn’t stopped some from turning the pension problems of a few into a statewide epidemic, and what’s their remedy? Lump everyone together, much like the commonwealth did for state employees and teachers, and create a single statewide municipal pension system.

The consolidation crowd needs to face the fact: The State Employees Retirement System and the Public School Employees Retirement System are bigger, but they’re certainly not better. In fact, they are the lion’s share of Pennsylvania’s pension debt and demonstrate what can happen to large one-size-fits-all systems.

Despite this current state of affairs, though, some state officials continue to insist that the commonwealth is better equipped to oversee municipal pension plans than local government leaders, many of whom have their pension houses in order.

How’s that for irony?

Lawmakers should instead focus on the state and its more severely troubled pension systems. Then, after they know how to tame that $40 billion (and growing) beast should they turn their attention to municipal pension plans. But rather than focus on consolidation, lawmakers should provide local leaders with common-sense reforms that not only preserve locally administered pension plans but also do something we all agree makes sense: save tax dollars.

There are some solutions already on the table that would help all municipal pension plans right away, and there is no need to wait. A proposal by the Coalition for Sustainable Communities would be a good first step. The measure would enable municipalities to move away from the defined benefit plans mandated by law for some local police and firefighters and remove retirement benefits from the collective bargaining process – a practice responsible for strapping current and future generations with budget-draining obligations.

The way I see it, the pension crisis remedy shouldn’t be to make the healthy swallow the same bad medicine as those in trouble. Instead, we should be tailoring solutions that keep healthy plans off life support and put ailing ones back on the road to recovery.

Guest columnist David M. Sanko is the executive director of the Pennsylvania State Association of Township Supervisors. With a broad background in local and state government, Sanko oversees an organization that is the primary advocate for the commonwealth’s 1,455 townships of the second class, home to 5.4 million Pennsylvanians.

Nothing contained here should be considered as an attempt to aid or hinder the passage of any legislation before the General Assembly.

The views expressed here are those of the author and not necessarily those of the Susquehanna Valley Center.