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February 2, 2012 | Commentary by RICHARD DREYFUSS
Will our Grandchildren be Budget Losers?
As the Governor's state budget address approaches, there is no shortage of speculation surrounding various fiscal austerity proposals and which departments and programs will likely be the ultimate budgetary "winners and losers."
June 15, 2011 | Commentary by RICHARD DREYFUSS
Not Paying Pension Bills Hurts our Grandkids
Politicians last year passed their version of pension reform by deferring existing unfunded liabilities, making them even more unaffordable. The situation was so severe that they felt compelled to include a legislative provision that effectively capped contributions for several years despite repeated and significant concerns raised by independent actuaries that such a move would only further shortchange already underfunded plans.
June 21, 2010 | Commentary by RICHARD DREYFUSS
$27 Billion Pension "Reform": Still Doubling Down on Generational Theft
An Update on HB 2497
On June 16, the PA House passed pension "non-reform" by further deferring the scheduled taxpayers' contributions to the state's largest government pension plans - the Public School Employees Retirement System (PSERS) and State Employees Retirement System (SERS). They also created a new reduced defined benefit plan for new hires. The net cost of this reform with interest is still a breathtaking $27 billion. Since the prior version of the bill was an incremental $52 billion - by some scorecards this bill should be considered only half as bad.
Recent Blog Posts
JUNE 2, 2011
The Phony "Surplus"
The Pennsylvania Department of Revenue released May General Fund tax collection data, and many lawmakers are clamoring to spend this "surplus". But the idea there is any "surplus" is bogus. For starters, the $500 million tax collection exceeds estimates is a windfall, not a surplus. A surplus represents money left after all spending.
But even if there is any surplus left at the end of the fiscal year, it is a completely contrived notion. Consider these facts:
- The 2010-11 budget was balanced using temporary stimulus money, transferring funds from other accounts, and other one-time gimmicks. The state is spending far more than it is collecting in revenue.
- Governor Corbett's proposed $27.3 billion budget for 2011-12 already consumes an expected surplus, spending almost $500 million more than projected revenue.
- Pennsylvania is paying unemployment compensation by borrowing from the federal government. The state already owes $3.8 billion, and continues to go deeper into debt.
- The surplus has been created by not paying and delaying requirement payments into state pension plans. The actuarial note accompanying Act 120 notes:
However, it should be noted that the employer contribution collars (in effect through 2015) represent a departure from the norms of actuarial funding practice. The effect of the bill as amended would be to suppress the employer contributions to both PSERS and SERS resulting in significant underfunding of both retirement systems.
In other words, the surplus has been created by accounting gimmicks—effectively the state is not paying its bills. Any surplus must be used to pay off our obligations, not fund pet projects.
posted by NATHAN BENEFIELD, RICHARD DREYFUSS | 11:08 AM | 0 comment
DECEMBER 16, 2010
Did Lawmakers Fix the Pension Mess?
Joe DiStefano of the Philadelphia Inquirer writes that State Representative (and PSERS Board member) Dwight Evans claims no further pension reform is needed. Evans is hardly dealing with reality.
The charts below, obtained directly from PSERS, show that under HB 2497/Act 120, the unfunded liability will be much higher. How is reducing contributions to already underfunded pension plans celebrated and considered reform? Further, as we've pointed out, and as noted in a Wells Fargo report on Pennsylvania's fiscal situation, reduced taxpayer contributions over the next few years will be made up for with higher contributions in the 2020s and 2030s. The AP has reemphasized this point with a recent story on how contributions will still have to average $5 billion over the next 10 years, up from about $1 billion this year.
DiStefano also wrote that Evans will rely on dramatic stock market returns to fix the pension crisis:
Evans also expects the stock and bond markets will recover, pushing investment values higher and reducing the actual need for greater subsidies: "The markets have always come back in the past," he said.
The current projections assume 8% annual return, and the funds will have to return more than that to make up any of the gap. Yet a Pensions and Investors article suggests that the funds face a looming liquidity crisis—that is, continued underfunding requires PSERS and SERS to put money into more liquid investments in order to pay out benefits. These investments typically produce lower investment returns.
In fact, PSERS is calling a special board meeting on January 19 to review actuarial funding assumptions. I believe one action likely to be adopted by the PSERS Board will be to lower the assumed rate of return, which will increase the projected unfunded liability.
We identified 13 reasons to oppose HB 2497; to date no one has refuted a single reason. This "non-reform" bill only made matters worse, and does not begin to deal with municipal pension reform involving the approximately 2,200 defined-benefit plans statewide.
posted by RICHARD DREYFUSS | 01:44 PM | 0 comment
SEPTEMBER 3, 2009
A Missed Opportunity for Pension Reform - Continuing Generational Theft
Analysis of HB 1828 - the so-called Pennsylvania municipal pension reform bill (which includes a Philadelphia sales tax increase) facing the PA General Assembly - by Commonwealth Foundation senior fellow Rick Dreyfuss
posted by RICHARD DREYFUSS | 09:01 AM | 0 comment
