Issue Position: Public Pension Crisis

Issue Position

Pennsylvania has an unfunded public and teacher pension obligation that is currently estimated to be between $45 billion and $48 billion. For simplicity's sake, I will refer to it generally as a "public employee" pension in this explanation. This gives Pennsylvania the ignominious distinction of having the nation's 4th largest unfunded liability. An unfunded liability is one where the state has the obligation to pay, but has not retained the reserves to fund payments.

Traditionally, Pennsylvania reserved enough money to fund its state pension system. Unfortunately, some imprudent decisions combined with a prolonged recession left the reserves significantly depleted. Pennsylvania is not the only state to be in this situation, but the size of our unfunded obligation coupled with the economic challenges that most of the communities within the Commonwealth face make this a particularlly troubling predicament. Both Standard and Poors and Moodys, which are credit rating agencies, have placed Pennsylvania on notice that they will downgrade the state's credit rating if the legislature and governor do not take action. A downgraded credit rating will make it more expensive for the state to borrow money, which will contribute to the financial pressures that we already face.

The pension "crisis" is frequently raised as a call for action on the part of those who favor altering or even eliminating the entire pension system. However, those state employees who are eiher retired and living on a pension or who have invested time in the system are also stakeholders in this debate. The uncertainty of the viability of the pension fund creates risks for those whoose retirement plans are already made, and are relying on the pension being there for them. This problem needs a permanent solution in order to provide security for all involved.

It is imperative that the legislature take action on this matter immediately, and action will require difficult decisions. Among those actions being considered, and which I support seriously considering, are establishing a 401(k)-type program for new and recent hires, prohibiting risky borrowing schemes, such as pension bonds, funding the pension consistently, raising the retirement age for state employees, increasing employee contributions and incentivising early outs.

Any solution to this problem will need to be multi-faceted and will require the support of various interest groups. Pennsylvnia is a swing state with heavy labor interests in many of the legislative Districts; it is difficult to imagine any solution that would not have some union backing. Obtaining the consensus needed to have a meaningful permanent solution will require leadership. I am interested in getting results, not making speeches and excuses, and I will work with all parties to find a solution to this problem.

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