Fixing pensions: Tax relief won’t come soon under Corbett’s plan

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Gov. Tom Corbett has done a disservice to Pennsylvanians by reducing the complicated issue of public employee pensions to a campaign slogan.

When he proclaims that “Pension reform equals property tax relief,” he is appealing to homeowners — and specifically potential voters — who have seen their school taxes increase, but he glosses over fundamental details.

It is true that, in many districts, rising pension costs are responsible for some, if not most, millage hikes. It is equally true that Pennsylvania needs to corral the escalating cost of retirement plans for state and public school employees, including members of his Cabinet and the Legislature.

But even if Mr. Corbett’s proposal for pension reform were enacted tomorrow, it would take many years to significantly alter the contributions that the state and the districts need to make. Mr. Corbett’s aides acknowledge this, but the complicated truth is lost when the governor reduces it to electioneering.

Mr. Corbett’s pension proposal is quite modest. It would apply only to new hires, maintaining a defined-benefits plan for the first $50,000 of salary, with the rest eligible for a 401(k)-style plan. It does not promise as much relief to school districts as his earlier proposal, offered in February of 2013. That plan would have required all new hires to participate solely in a 401(k)-style plan and it would have reduced the value of pensions for current employees going forward while leaving intact what they’d already accrued.

The governor caved on that proposal too quickly, and he failed to take that argument to the people. Now he wants to take “reform lite” to the voters, as he promised to do when he signed the 2014-15 budget while calling out members of the state House and Senate and the state’s public employee unions for culpability.

He’s right that lawmakers have not stepped up to offer remedies with real impact and that labor unions certainly are not eager to give in on retirement benefits. The full picture, however, shows that there is more blame than that to go around.

In 2001, when pension coffers were flush, lawmakers boosted benefits for themselves and state and school workers. That backfired when the 2008 economic recession hit and returns on pension investments fell. The Legislature exacerbated the problem by capping the contributions by employers — the state and the school districts — even though teachers and other employees continued to put in their full share.

Two years later, the Legislature enacted Act 120, which was touted as a remedy but which merely postponed the date when the state and schools would have to start making higher contributions. That day is now here, and Pennsylvania’s public employee pension plans are an estimated $50 billion short.

Mr. Corbett is correct that significant changes must be made going forward so school districts and the state can afford to pay adequate pensions. But making exaggerated assertions and pretending that his modest pension revisions will “equal” a change in property tax rates is not fair to the people of Pennsylvania, who elected him on the promise of real reform.

Meet the Editorial Board.


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