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Bill takes stab at Pennsylvania pension crisis

Debra Erdley
| Sunday, June 13, 2010

With two years left until a wave of payments come due for Pennsylvania's state and school employee pension funds, the House Appropriations Committee released a bill that would cap taxpayer payments for the next several years and defer higher costs.

Lawmakers concede House Bill 2497, sponsored by Appropriations Committee Chairman Dwight Evans, D-Philadelphia, is a starting point for debate that will likely grow more heated.

"There's always been a desire to get the public debate started. ... Even if it is not resolved this year, we can get a lot of legwork done," said Evans' aide, Johnna Pro.

Many states, reeling from investment losses their public pension funds took in 2008 and early 2009, have acted. According to the National Conference of State Legislatures, 15 states made adjustments to their pension plans this year.

Pennsylvania's public pension funds took major losses when the markets tumbled. Those losses were compounded by a complex string of events dating to 2001 when lawmakers boosted benefits, reduced employee vesting periods by half, added a cost-of-living adjustment for retirees and passed legislation to defer the cost of those moves by a decade.

The bill comes due in 2013-14. Pension fund estimates show the tax-funded employer contributions to the two pension funds ballooning from $776 million this year to $3.15 billion in two years.

School districts, which must come up with half the employee contribution for the school pension fund -- the state absorbs the other half -- are keenly aware of projections that show property taxes would have to increase by an average of more than $500 per homeowner to meet the spike in obligations.

"We have 170 school districts that have passed resolutions for relief on the pension issues," said Tim Allwein of the Pennsylvania School Boards Association.

Allwein said the school boards want the General Assembly to do something more than defer costs. The association released its own proposal last year seeking major changes to the structure of the pension system for new hires.

"You control costs long-term by changing the benefit levels -- changing the multiplier, the vesting, the rules on withdrawals," Allwein said.

Wythe Keever of the Pennsylvania State Education Association said the teachers union could support Evans' bill as long as it is not amended.

The teachers say pension problems stem from the state's failure to make adequate contributions to the plans. They are adamant that any two-tiered pension system -- one for those on the payroll now and one for new hires -- would hamper the state's ability to attract the best teachers.

Senate Republicans, however, say structural changes may be necessary.

"We are interested in an honest conversation about how to reduce the future cost of the state pension systems. That conversation may include such issues as the vesting period, the multiplier and others," said Erik Arneson, a spokesman for Senate Majority Leader Dominic Pileggi.

Gov. Ed Rendell, who first called for action on the pension funds two years ago, supports the Evans bill. Rendell's press secretary said inaction on the issue has contributed to the magnitude of the problem facing the state.

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