Inaction on Pensions Leads to Downgrade for Pennsylvania

JULY 17, 2013 | by NATHAN BENEFIELD

This latest look at Pennsylvania's fiscal house shows the urgency of pension reform and spending restraint.

Fitch Ratings yesterday downgraded Pennsylvania's bond rating.  This effectively sends a sign to investors of greater risk in buying Pennsylvania bonds, which could result in higher interest rates for state projects like road repair and school construction.  These additional costs will be passed on to taxpayers.

Fitch writes that the downgrade was based on "the commonwealth's failure to adequately address key fiscal pressures."  Fitch noted a "structural imbalance"—meaning revenues aren't keeping pace with state spending.

Failure to enact pension reform was a major factor in the downgrade.  Fitch writes, "Sizable increases in [pension] contributions due to the systems were required in the current-year budget and are forecast in the coming years, and are projected to consume much of future revenue growth."  This exponential growth in future taxpayer pension costs—and the downgrade—shows why we simply cannot "let Act 120 work".

Moreover, Fitch notes that the pension crisis is going to get worse, not better, as the unfunded liability is expected to grow until 2018. The report also mentions the lack of action pension reform measures, and suggests it is "unclear if any pension reform will be enacted."

Why did pension reform fail to happen?  Matt Brouillette shows how the "Big Government Party" that benefits from the status quo blocked reform.  In another recent piece, Priya Abraham describes how we can protect taxpayers from the Pension Tsunami.

The downgrade in our state borrowing only shows the urgency for pension reform now



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