Pension Debt Strangles Local Government
Pension reform commands a great deal of attention in Harrisburg these days, and deservedly so. Pension systems for state and public school employees are in bad shape, and reform is vital.
But the commonwealth’s pension problems aren’t confined to state government and school districts. Pension costs are strangling many of the Keystone State’s local governments. Earlier this year, the Auditor General released a report detailing the magnitude of the local pension problem.
The report focused on 562 “distressed” municipalities. These 562 municipalities have underfunded their pension systems by at least $7.7 billion. Rising pension costs are forcing local governments to raise taxes and fees, lay off workers, and cut back on services—including those devoted to public safety.
To address this problem, lawmakers in the House and Senate introduced legislation to put new public safety employees into secure defined contribution or cash balance plans. Moreover, these bills would take pensions off the table during collective bargaining and binding arbitration—a process by which an arbitrator can set pension benefits regardless of a municipality’s ability to pay.
Here’s a short description of two pieces of legislation aimed at tackling municipal pension problems:
- HB 316, sponsored by Representatives Keith Greiner and Seth Grove, freezes pension benefits at current levels for public safety employees and moves those employees into a cash balance plan to prevent the accumulation of additional pension debt.
- SB 755, sponsored by Senator John Eichelberger, allows municipalities to establish defined-contribution plans for all public safety employees and would prevent local municipalities from using pension assets to fund any other programs aside from pension benefits.
While SB 755 is the better of the two plans—it takes the politics out of pensions—both proposals give local governments tools to fix the their pension problems.
Local government pension reforms are now gaining momentum thanks to bi-partisan support from Democrat and Republican local officials, business leaders, and the Coalition for Sustainable Communities, which the Commonwealth Foundation has proudly joined to help stress the urgency of municipal pension reform.