Pennsylvania’s two large pension funds — for teachers and state employees (the latter including state lawmakers, on the theory that they work) — are significantly underfunded. According to their own reports, they have a combined $53 billion in unfunded liabilities. In a March report, the National Association of State Retirement Administrators put the two funds at only 41 percent of annual required contribution, second-worst in the nation.
Five representatives of groups that speak for public school administrators and school board members told the LNP Editorial Board on Monday that Pennsylvania’s pension crisis must be addressed as part of this year’s budget.
“If you increase basic education (funding from the state to Gov. Tom Wolf’s proposed 50 percent), in the absence of solving the pension crisis, it’s going to be gobbled up by pension costs,” said Joseph Clapper, assistant executive director of the Pennsylvania Association of Elementary and Secondary School Principals. Clapper, who retired after eight years as superintendent of the Quaker Valley School District about a year ago, said he understands this, having worked on his final budget just 10 months ago.
Joseph Bard, executive director of the Pennsylvania Association for Small and Rural Schools, also said it’s time to act.
“The can’s been kicked about as far as it can go,” he said.
And John Callahan, senior director of government affairs with the Pennsylvania School Boards Association, said his organization is so ready for reform that it supports both of the proposals on the table now: Senate Bill 1, a Republican-passed bill that would reduce benefits for current employees and eliminate defined-benefit pensions for future employees; and Wolf’s proposal to float $3 billion in pension-liability bonds and reduce the fees the pension funds pay to Wall Street.
Callahan, unlike many House lawmakers, believes the Senate bill’s proposed reduction in current employees’ benefits is constitutional. He said he sees the Senate bill addressing the long-term problem and Wolf’s proposal reducing school districts’ rising pension obligations in the near-term. And, if state funding could be provided to help school districts pay their pension obligations, the PSBA would support that, too, he said.
“We support all those solutions,” Callahan said, “money on the table, taxes or bonds.”
Jay Himes, executive director of the Pennsylvania School Business Officials, and Jim Buckheit, executive director of the Pennsylvania Association of School Administrators, agreed that pension reform is a must.
In an interview Tuesday, Clapper said he hopes conversations toward pension reform are happening behind the scenes.
Hope is needed because the two sides seem so far apart, and neither plan appears to be the right course.
Financial experts told The New York Times last week that pension obligation bonds like the ones the governor would seek “are typically used to make troubled pension systems seem a little less troubled for a few years” and do not really solve the problem.
And many believe the GOP’s Senate-passed plan would be struck down in court as a violation of pension obligations they see as state contracts with state and school employees.
Add in that Republican leaders and the governor have rejected each other’s pension-reform proposals and you have a stalemate that could, by itself, delay serious budget negotiations well into the summer.
The state’s pension shortfall is a serious issue. The budget depends on it. And restoring equity and quality to Pennsylvania’s public schools depends on a budget.
There’s too much at stake to dither. As the June 30 end of the fiscal year approaches, the governor’s office and Republican leaders need to agree on a solution to the pension crisis.