Philadelphia Metropolis

Metropolis Report

Share/Bookmark

Special Report: Pennsylvania's Pension Crisis

| Comments

By William Ecenbarger

The phrase unfunded accrued liability doesn't carry a lot of clout with average Pennsylvanians, but it's really time that they began to pay attention.

Besides, it's not as complicated as it sounds. It refers to a simple number: The difference between what politicians have promised to pay government workers in pensions and the amount these same politicians have set aside (in taxpayers money) to pay these pensions.

The politicians understand the concept very well, but they can't bring themselves to talk about it. That's because it is really going to make a lot of voters angry.

A huge bill is coming due on the unfunded accrued liability that has built up in public employee pension funds, from the township to the state level and it must be paid. Taxes are going to have to go up - in some cases significantly - to keep these pension funs afloat and meeting their obligations to retired employees.

There are three problem areas:

- The State Employees Retirement System (SERS), which now covers some 107,000 retired state workers, currently costs state taxpayers about $226 million a year. This is due to rise sevenfold -- to $1.7 billion -- by fiscal 2012-13.

- The Public School Employees Retirement Fund (PSERS), which covers about 168,000 retired teachers, now costs state and local taxpayers a combined $616 million. This obligation will increase to $3 billion -- nearly five times as much --by fiscal 2012-13.

- There are more than 3,000 municipal pension programs, ranging from Philadelphia and Pittsburgh to any rural borough with more than three employees. They cover retired police, firemen and non-uniformed workers (no one really knows how many) and they are already behind in their current obligations by at least $5 billion. That is not a typo.  They are behind by $5 billion.

There's a lot of blame to go around for the situation.

 

Blame Bismarck

For starters, you can blame Otto von Bismarck, the German chancellor. He is generally acknowledged as the founder of retirement because in 1889 he established the world's first national old-age insurance program. Bismarck set 65 as the eligibility age. The wily old "Iron Chancellor" knew the program would never strain the German treasury. At that time, life expectancy in Germany was about 47.Thumbnail image for Bismarck.jpg

Using Bismarck's stringent standards of fiscal responsibility, the current retirement age in America should be 102.

But when the U.S. moved into old-age insurance in 1935 with the Social Security program, Bismarck's benchmark of 65 was chosen - and so it remains for most. Yet today's average 65-year-old can expect to live another 18 years.

Or you can blame it on America's two major thoroughfares--Wall Street and Madison Avenue, which have intersected very profitably. Brokerage house propaganda about work-free "golden years" has been fueled by advertising images of happy, graying couples doing tai chi on the beach in the morning sun.

Or you can blame it on politicians, who low wages to some of society's most important functionaries - teachers, police, firemen, municipal trash workers - so they wouldn't have to vote for higher taxes. Instead, they promised them sumptuous, early retirements. It was easy because the bill would not come due until they were long out of office. The next generation of politicians would have to worry about paying for them.

And so for a generation of government workers, public service came to be thought of as a means to retirement-that is, withdrawal from the work force without necessity. With the help of the ongoing propaganda barrage from the investment industry, retirement became an earthly heaven to be achieved as soon as possible.

And with more and more of us destined to live into our eighties, retired public workers can spend half their adult lives as, in effect, wards of the state.

 

Blame Ridge, too

If you want to narrow down political responsibility for the impending disaster in Pennsylvania, start with former Gov. Tom Ridge and his co-conspirators in the Pennsylvania General Assembly.

It started in 2001 when the legislators decided they needed to increase their own pensions by 50 per cent, To divert attention from themselves -- lest anyone think them greedy -- they raised the future benefits of some 300,000 active state workers by 25 per cent. They did the same for local school employees.

Ridge went along with it, and promised it would not cost the taxpayers anything because the booming economy was producing hefty income for the invested pensions funds. The increases were approved quicker than you could say "boondoggle," without even a word of debate. 

The following year, already-retired state workers decided they were entitled to similar taxpayer generosity, and they were given nice raises. How nice? A state employee who retires at age 60 after 35 years of service can receive 70 per cent of his final salary - for life.   

The economy took a nasty turn in 2002.  Those double-digit yields on pension fund investments disappeared.  When Ed Rendell succeeded Ridge in 2003, his budget-makers suddenly faced the prospect of making sharply higher payments to keep the funds for state workers and teachers afloat, lest their unfunded accrued liabilities continue to rise.  

Rather than confront the issue then, Rendell and the Legislature -- ever a hot-bed of cold feet --  simply voted to avoid making most of these payments for the next 10 years.

In other words, the pain was delayed until 2012. It seemed so far away at the time.

But, as they say, it's not the long fall that kills you, it's the sudden stop.

 

 

Part II: Why the taxpayers will have to pay to keep public pension funds afloat.

 

Cover photo: Pennsylvania's state capitol.

Text photo: Otto von Bismarck, internet archives

blog comments powered by Disqus
Site by MartinKelley.com