HARRISBURG -- The state budget that Gov. Tom Corbett will propose next week requires savings in public employee pensions -- changes likely to include future benefits earned by current workers -- to avoid deep cuts elsewhere, the governor's budget secretary said Monday.
While the administration has revealed a few details of the spending plan Mr. Corbett is preparing to announce next Tuesday, it has not disclosed the particulars of either the broad budgetary framework or several major initiatives promised by the governor.
But in an appearance before the Pennsylvania Press Club, Budget Secretary Charles Zogby made clear the spending proposal will rely on the administration's success in reducing state contributions to the retirement systems serving state and public school employees.
"To not do pension reform will mean that we then have to go back into the general fund budget and find savings," Mr. Zogby said. "That will mean cuts somewhere."
Such cuts would be "deep, immediate and, yes, painful," he said.
He suggested funding for education could be one source to pay for increases in state contributions to the retirement systems.
"I'm mindful to point out the bulk of our pension cost increases are coming in our school employee retirement system," he said. "So you have to ask, well if we don't make the savings there, should other areas of the budget bear the brunt of those savings going away? Should that fall in public education? These are tough questions that we're going to have to face."
Mr. Zogby described the upcoming proposal as a continuation of two years of lean budgets under Mr. Corbett. In addition to the annual questions of funding by department and line item, the budget address next week is expected to feature policy proposals on the pension system, the privatization of state liquor stores and mechanisms for funding transportation infrastructure.
"Whether the issue is transportation, state store privatization or pension reform, it will be a budget that continues to challenge us to think differently as to how we best meet the public's needs and deliver on the core functions of state government," he said. "It's also a budget that recognizes that nothing comes easy and that reforms and reinvestment are inextricably linked."
The administration will look first at a new retirement plan for future employees. But unless that yields the targeted savings, Mr. Zogby said, officials also will look at prospective benefits of current employees, a scenario he described as "very likely." He emphasized that benefits already accrued, whether by workers or retirees, are safe.
The executive director of the statewide council of the American Federation of State, County and Municipal Employees has argued that Pennsylvania case law does not allow the state to change the retirement terms of current employees.
Senate Majority Leader Dominic Pileggi, R-Delaware, and Rep. Glen Grell, R-Cumberland and a House point person on pension issues, also have said it appears the state constitution does not allow changes to benefits that current employees have yet to accrue.
Mr. Zogby said the governor's legal counsel has been studying the issue.
"What the governor puts out next week we believe is legally sustainable," he said. "So we'll have that debate."
Together, the State Employees Retirement System and the Public School Employees Retirement System have unfunded liabilities of more than $44 billion, according to actuarial reviews.
Under current law, contributions from the state general fund to the two retirement systems will increase next fiscal year by about $511 million, Mr. Zogby said.
Ted Kirsch, president of the American Federation of Teachers-Pennsylvania, said in a statement that legislation enacted in 2010 will gradually restore state pension contributions to sustainable levels.
In the meantime, he said, the state should meet its retirement obligations through corporate or shale-drilling taxes.state
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