MAY 3, 2012

Reform Bills Would Begin to Reduce Fiscal Fire

While the fiscal fire is raging across Pennsylvania, Rep. Eli Evankovich's pension reform proposal begins to extinguish the flames that threaten to consume the commonwealth. We've been on record for years with a five-step solution to the pension crisis. 

Rep. Evankovich's bill would place all future lawmakers and their staff into a defined contribution plan similar to the 401(k) plans common in the private sector. Currently, state teachers and government employees are under a defined-benefit plan that guarantees benefits based on salary and years of service.

Currently, taxpayer contributions for our two statewide pension plans, PSERS and SERS, are projected to increase from $1.7 billion in 2011-12 to more than $6.1 billion in 2016-17— a 257% increase. Evankovich's bill, along with bills introduced by Rep. Krieger, Rep. Petri and Rep. Boyd are a step in the right direction, as are Gov. Corbett's now numerous statements of concern about pensions.

EDITORS NOTE: This post originally implied Rep. Evankovich's bill would require public school teachers and state employees to enroll in a defined contribution plan.

posted by ELIZABETH STELLE | 06:05 PM | 0 comment

APRIL 4, 2012

Schools Get Property Tax Referendum Exemptions for Pension Costs

Last year, the Pennsylvania General Assembly passed, and Gov. Corbett signed, legislation reducing the number of exemptions to the school tax referendum requirement. But as noted this week, the Pa. Department of Education approved exemptions for nearly 200 districts, allowing them to increase taxes above the "index" without seeking voter approval.

The total value of exemptions granted was more than $159 million. Not all schools will use the full amount of the exemptions granted, but they have the authority to increase local property taxes up to the index—the base index is 1.7 percent, but is higher in many districts—plus any exemptions received.

The number of exemptions this year is in fact higher than in several previous years (but less than in 2011). There are two key reasons. First, the index is lower than in past years—in 2008 and 2009, every school district could increase property taxes by more than four percent without referendum or exemption. Second, pension contributions are one of the three exemptions remaining, and school pension costs continue to rise.

Of the 197 school districts to receive exemptions for 2012-13, 194 received an exemption for increased pension contributions. And almost half of the amount approved was for increased pension costs (another 41 percent for special education costs).

Unfortunately for taxpayers, pension contributions will continue to skyrocket for years to come, as the chart below illustrates.

posted by NATHAN BENEFIELD | 00:50 PM | 0 comment

MARCH 9, 2012

Does Underfunding Pensions "Help the Kids"?

A letter I recently submitted to the Allentown Morning Call on state education subsidies and pension funding:

The Morning Call's article on state subsidies to school districts has a curious headline "Corbett's education spending hike covers pensions, not books." Surely the authors realize almost no education spending goes towards books.

According to the Pennsylvania Department of Education, in 2009-10, only 4 percent of public school spending went for supplies. More than 60 percent was for employees' wages and benefits, and 11 percent for debt payments.

It is surprising to see the Morning Call question whether pension payments, but not other school spending, are "for the kids." Pensions are nothing more than deferred compensation for teachers and other school employees.

For years, unfunded pension liabilities have grown as lawmakers chose to underfund these plans. As the article notes, taxpayer contributions to pensions will increase dramatically not only this year, but every year in the foreseeable future. This growth will certainly crowd out other areas of school spending, if not bankrupt the state and lead to massive tax hikes.

What the article curiously fails to note is the Pennsylvania State Education Association - now complaining about the impact of pension costs - was complicit in the crisis. The PSEA lobbied not only for the 2001 pension increase, but also for 2003 and 2010 legislation to delay pension payments. Along with investment losses, this led to unfunded pension liabilities of $40 billion. The bill, with interest, is now coming due.

It is easy to see why the PSEA didn't mind the underfunding, since it freed up funds to hire more staff, resulting in additional union dues. But educators should be aware that union bosses helped create a pension crisis that threatens teachers, taxpayers and students for generations to come.

posted by NATHAN BENEFIELD | 11:12 AM | 0 comment

SEPTEMBER 21, 2011

New Polling Shows 72 Percent of Pennsylvanians Support Right to Work

New polling conducted by Douglas E. Schoen, LLC for the Manhattan Institute nationally and in 10 targeted states shows widespread bipartisan support to reduce state government spending rather than increase taxes.

The poll looked at state budget issues and collective bargaining and benefits for government employees. The poll of 400 Pennsylvania voters found:

• To fund our government employee pension/benefits, 49 percent support cutting government spending, 30 percent support requiring employees to contribute more to their plans, only 12 percent support raising taxes.
  
  • As to why the state is in fiscal crisis, only 3 percent suggest the state is not taxing enough.
• 46 percent (plurality) support restrictions in collective bargaining rules.
• 57 percent support limiting teacher tenure.
• 64 percent support moving all government employees to a "401(k) type" retirement plan.
  • 71 percent support giving government workers a choice of such a plan.
    
• 69 percent say the state government should not collect PAC contributions on behalf of government unions, as is currently done.
• 58 percent think the salary increases guaranteed in the most recent state contracts were too generous.
• 72 percent support making Pennsylvania a Right to Work state.

The state results paralleled those nationally:

• Voters strongly support policies that cut state spending and reduce benefits for current and future public employees, but not for retirees. Voters also believe that employees should contribute more towards their pensions. Voters strongly resist any tax increases.
• Voters acknowledge that the influence of unions needs to be curtailed in order for these reforms to occur. Voters feel there is no absolute right to collective bargaining; rather, it is a benefit that can and should be negotiated. Voters are prepared to accept some restrictions on collective bargaining when states are facing fiscal problems.

Pollster Schoen summarized these trends in a Wall Street Journal column on Monday.

posted by NATHAN BENEFIELD | 11:30 AM | 0 comment

AUGUST 31, 2011

Big Labor's Stranglehold in Pennsylvania

Here's a depressing, if unsurprising, statistic: In a new index assessing whether states favor government union bosses or taxpayers, Pennsylvania ranks 5th worst. The Competitive Enterprise Institute ranked all 50 states on 23 dimensions, including collective bargaining laws, pension funding, government union density and right-to-work laws. Out of a possible 40 points, Pennsylvania snagged only seven. (Tennessee had the best environment for taxpayers, at 36 points, while New York was the worst, with a paltry four points).

The gloomy facts contributing to Pennsylvania's woeful ranking: Half of government workers, which include public school teachers, are unionized compared to 9.3 percent in the private sector. The unions' ability to collectively bargain allows them to maintain a political stranglehold over the use of taxpayer money—and drive up demand for public services.

Unions also fund major political lobbying efforts by drawing automatic dues or fees from workers' pay checks, whether or not the workers are union members (Pennsylvania has no pay check protection law). Decades of bad labor policy is keeping Pennsylvania in the economic doldrums. But adopting several reforms would foster the job creation growing states such as Florida or Texas enjoy.

posted by PRIYA ABRAHAM | 04:33 PM | 0 comment

JULY 29, 2011

Michigan Pension Reform Saves $4 Billion

Before 1997, Michigan state employees (like those in Pennsylvania) solely received defined-benefit pensions in which employees are assured an annual retirement income. However in 1997, Michigan shifted public pensions from the defined-benefit program to defined-contribution retirement plan, like the 401(k) plans most companies in the private sector use.

Commonwealth Foundation Senior Fellow Rick Dreyfuss conducted a study for the Mackinac Center on the taxpayer savings from this shift. Dreyfuss discovered that Michigan saved more than $167 million in its annual funding of retirement benefits and more than $4 billion in unfunded liabilities.

Pension reform also shifted political incentives. In Pennsylvania and other states, legislators are able to increase benefits and postpone payments, driving up future liabilities.

Michigan's reform does not allow for underfunding, as payments must be current into an employee's retirement account, something Dreyfuss argues may be the greatest benefit of pension reform.

posted by JONATHAN HUMMA | 00:17 PM | 0 comment

JULY 5, 2011

Disappointing Results from State Union Contract Deals

So far, the Corbett administration has concluded new four-year contracts with Pennsylvania's two largest state worker unions, which represent 55,000 government workers—and the taxpayers are the losers.  The deals with the American Federation of State, County and Municipal Employees (AFSCME) and the Service Employees International Union (SEIU) will end up costing taxpayers an extra $164 million annually (an increase to $2.9 billion by 2015).  The unionized government workers will largely avoid the pay freezes and rising health costs that Pennsylvanians across the private sector are facing.   

AFSCME workers, for example, are already generously compensated: the average employee in 2009-10 earned $39,464 in wages plus $22,986 in benefits for a total compensation of $62,450.  Although the contracts freeze pay for the first year, total pay raises over the life of the contract for a current employee will amount to 11.2 percent (not the 10.75 percent noted in a summary version of the agreement, which does not incorporate the compounding effect of one increase on top of another).

Even more disappointing: state workers will not have to bear healthcare costs the same way their private sector counterparts do.  The employee healthcare contribution is still calculated as a percentage of the worker's pay, rather than as a percentage of healthcare costs. The employee contribution will remain at 3 percent of pay for the first three years before rising to 5 percent in the fourth year—and half that amount if workers enroll in the "Get Healthy" program.   For the average AFSCME employee, that is a contribution of $98.66 a month, compared to the $231 the average private-sector employee in Pennsylvania pays for a family plan. 

Nor does it appear that the governor made headway on ending dues deductions, and the state—at taxpayer expense—will continue to collect contributions to unions' Polical Action Committees (PAC) for financing the elections of candidates.

posted by PRIYA ABRAHAM | 04:20 PM | 0 comment

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

MAY 13, 2011

Who Owns "Big Oil"?

We've previously pointed out that a tax on natural gas is a direct tax on landowners, but a new study shows it hurts teachers and state workers too.

"Big Oil" isn't owned by high-level executives—in fact, corporate management only owns 1.5 percent of industry share—it's owned by tens of millions of Americans who invest in oil and natural gas stocks through mutual funds and pension funds.

The new report looked at the financial contribution of oil and gas investments to major public pension plans. In Pennsylvania, the state workers (SERS) and school district employees (PSERS) pension funds invest heavily in oil and natural gas companies. These investments make up 3.4 percent of investments, but contributed 8.6 percent of the returns from 2005 to 2008.

Some of SERS and PSERS most lucrative investments are in oil and gas. Politicians seeking to soak gas companies with new taxes are really hurting teachers and state workers, not to mention taxpayers. Indeed, taxpayer contributions to pension funds are already scheduled to skyrocket, and that is assuming 8 percent annual return (fueled by energy stocks).

posted by KATRINA CURRIE | 10:06 AM | 0 comment