In a guest post, State Rep. Glen Grell addresses the pension reform myth that Act 120 has fixed the pension crisis.  For more facts & myths, click here.

The Commonwealth operates two public pension programs: the State Employees Retirement System (SERS) and the Public School Employees Retirement System (PSERS). The funding issues surrounding these programs are complex, but as it stands now, these systems together are operating with an unfunded liability of at least $41 billon – and growing.

Act 120, of which I was one of the authors, was signed into law in 2010. The legislation established a new plan design for state and school employees coming into service from 2011 onward. It also offered short-term relief to school district budgets by applying “rate collars” to the required annual employer contributions to the pension funds.

Act 120 was an important first step in addressing the funding crisis facing SERS and PSERS. But it was only a first step. It was never represented as a long-term solution to our public pension funding issues. Unfortunately, some people do not realize that Act 120 does not address the larger problems with our pension systems. They have begun urging lawmakers to adopt no further pension reforms and, in their words, “let Act 120 work.”

The truth is that if we just “let Act 120 work,” the school districts in our area and across the Commonwealth will face substantial increases in their required employer contributions to PSERS. These contribution increases will require districts to make difficult decisions to balance their budgets, resulting either in substantial property tax increases, severe cuts to programs or both. It would be irresponsible to sit idly by and “let Act 120 work.” To put this into perspective, consider the three school districts I represent.

The current employer contribution for PSERS in the Camp Hill School District is $527,329. If we “let Act 120 work,” that contribution soars next year to $746,000. By the 2017-18 school year, the employer contribution skyrockets to $1,434,000.

For the Cumberland Valley School District, this year’s PSERS contribution is just over $2.9 million. Next year under the Act 120 provisions, the amount increases to $4.1 million. By 2018, the district would be required to disburse more than $8 million to the PSERS fund.

The present PSERS contribution for the East Pennsboro Area School District is $932,233. Next year, it will rise to nearly $1.4 million, and by 2018, the district would be paying $2,657,000 into the pension system.

As you can see, “letting Act 120 work” would have major adverse consequences for our schools and their students and it is not a viable long-term option. It is necessary to craft a comprehensive approach to pension reform that addresses our unfunded liability without doing damage to the reasonable retirement expectations of current employees. In the coming weeks you may hear me being critical of Governor Corbett’s proposal and offering a different, collaborative approach to address this important issue, because I believe doing nothing is not an option.

Bad revenue collections and updated projections highlight a big problem in the state budget: We are spending more than we are collecting. The problem is much worse than a recent shortfall—spending has been exceeding revenue for several years, and the gap will widen.

In February, as part of the proposed budget, the Budget Office forecast General Fund revenues would come in $232 million above the original estimates for the year. But February and March numbers came in well short of expectations. Following April, the state is still $67 million above estimates for the year, but short (and unlikely to hit) the number included in the proposed budget. Lower than expected sales taxes drove recent shortfalls—evidence that the federal payroll tax increase in January is hurting the state, as people have less take- home pay to spend.

Adding further worry, the Independent Fiscal Office (IFO) released projections for next year which are about $320 million less than than the amount forecast in February.

This shouldn't cause panic, but those who hoped for more money to spend will be disappointed. But what is often overlooked is that the state is spending more than revenue this year and in the proposed budget. With the new numbers those gaps are much larger, and in fact, that level of spending would be impossible, as the state would exhaust its fund reserve (see table below).

The recent shortfall is part of a long-term fiscal crisis. Spending has been exceeding revenue for several years, and the gap will widen in the future. In December, the IFO released analysis show spending was likely to grow significantly faster than revenue over the next few years.

The two main drivers of this crisis: Medicaid spending and pension costs. In other words, we need real reform to slow unsustainable Medicaid spending, rather than expanding the beleaguered program. It also means we must tackle pension reform to prepare for the tsunami that will hit taxpayers over the coming years.

The recent bad economic news puts pressure on lawmakers to balance next year's budget by June 30, but the more important challenge is putting our fiscal house in order.