Mar 19, 2015 3 min read

Gov. Tom Wolf has a plan to lift Pennsylvania from the $50 billion hole that is its public pension crisis. Unfortunately, even if the Republican-controlled Legislature were to roll over on its back and approve the plan as it stands, it’s not enough.

The problems began during those boom times of the 1990s. Under Gov. Tom Ridge, pension plans were made more generous, and the state and most agencies and school districts lowered or stopped making the required payments to the plans, which were rising on their own along with the stock market. Then, the bottom dropped out in 2001, and the economy took another devastating hit in 2008, and along with it, those pension plans. It became apparent that soon not enough money would be in those plans to pay the pensions because of the retired state workers and public school employees.

To save their pension plans, school districts, for example, must now make huge contributions that increase each year, and without some relief, the only way to afford the payments will be to drastically cut programs and payroll and, at the same time, levy enormous property-tax increases.

Wolf wants the state to make the full required contribution in 2016-17. That could mean paying more than $2 billion alone to the larger of the two pension systems, the Pennsylvania School Employees’ Retirement System.

The money for that contribution has to come from somewhere. Wolf proposes borrowing $3 billion through a bond issue and asking the state’s two retirement systems to cut investment fees by $200 million per year. The administration believes gains from investing this money will reduce annual payments to PSERS by $1.3 billion over five years, and $10 billion over 24 years.

Payments would still rise, but perhaps not even at the rate of inflation, according to the administration.

There seems to be a little too much wishful thinking in Wolf’s plan. Will the retirement systems be willing or able to lower their management fees? Will the stock markets continue to rise and the state’s new investment continue to grow? Or might that investment be depleted by yet another financial downturn?

The solution proposed by Republicans in the Legislature addresses problems that the state will face a generation from now but does nothing to relieve today’s situation. They focus on cutting pension benefits of future employees, of switching future employees to a 401k-style retirement plan rather than a defined-benefit system.

Wolf resisted changes to the state pension system. He should drop his opposition. The past 14 years showed us such a generous, defined-benefit plan is not sustainable. Embracing this change and making it part of his pension proposal would not just strengthen the administration’s plan but make it more palatable to Republicans and more likely to be passed into law.

Wolf could also improve the chances of passage by abandoning his defense of state liquor sales, and by pledging the proceeds from the sale of store licenses to pension contributions.

Of course, we’re talking about compromise here. If we are going to avoid the disaster that defaulting on pensions would create, our legislators and governor must do a lot of compromising. Are they up to the task?