PENSIONS: Elephant Corner Lauds Corbett’s Pension Reforms

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This Tuesday GOV. TOM CORBETT issued his budget plan for the fiscal year 2013-2014 of $28.4 billion, which is an increase of $697 million or 2.4% over the previous year. Once again Corbett delivered a budget that does not increase taxes. However, he does recommend some increases in fees and fines.

Of course, we expect the Democrats to criticize him for not raising taxes and for raising fees. While this elephant may not agree with each and every allocation of funds, the overall budget is good for the state. Two elements of the budget specifically pension reform and the privatization of the Liquor Control Board will receive significant headwind from the unions, as well as the State Representatives and Senators that rely on their endorsement to be elected. We expect most of the Philadelphia contingent of elected officials in Harrisburg to be opposed to both aspects of the budget.

Corbett’s pension reform calls for new employees to be put into defined contribution plans (401Ks). Current retirees will see no changes to their pension payments. Current employees will not see any changes to benefits already accrued, but future benefits will be lower. However, employees will have the option to contribute more to maintain a higher level of future benefits (the mechanics of how this works is the subject of its own essay).

The two state pension plans, Public School Employees’ Retirement System and the State Employees’ Retirement System, are funded at 69% and 65% respectively. The shortfall for the two funds collectively is $41 billion. Without changes to the current system, the funding requirements for yearly increases to pension obligations (without any contributions to the deficit) would double every two years. Without the reforms, contributions for 2013-14 would increase $500 million.

While this elephant does not want to see people’s pension plans reduced, the State cannot afford the current system. While many are not so opposed to tax increases as I am, I believe few are willing to see sizable tax increases to fund these pensions. The Corbett Administration estimates funding the current system would cost each household in the state $10,000. For private-sector workers most of whom have 401(k)’s, this is not palatable.

Corbett’s budget calls for the privatization of the LCB. The plan which was outlined last week is expected to raise $1 billion from the sale of store licenses and the proceeds will be used to finance the Passport for Learning Block Grant. The grant will be for school districts and may be used for school safety, enhanced kindergarten programs, individualized learning and improved math and science classes. Approximately $200 million of these funds will be allocated to fiscal 2013-14. While the State does profit from the sale of wine and spirits, it expects that it will make as much from income taxes and sales taxes from increased sales. The privatization is to be phased in over a four-year period.

Pennsylvania and Utah are the only states that require that state-owned stores to be the sole purveyors of wine and spirits that are not consumed in the store. It is not surprising that Utah, the home of the Mormon religion which shuns alcohol, would have significant controls over the sale of liquor.

However, the fact that the state-store system still exists in Pennsylvania, where apparently over 80% of its citizens want it abolished is stunning. While the stores have improved over the last decade, people find them inconvenient. The privatization plan will allow grocery stores and other retailers to sell beer and wine as in other states.

The pushback here has been from the unions and the beer distributors. While again this elephant does not want to see people loss their jobs, I have to believe there will be plenty of opportunities for experienced liquor-store workers in the new privately held entities.

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