Fiscal Pressure Will Continue to Dominate Legislative Agenda

The 2015-16 legislative session in Harrisburg ended much the way it began – with the specter of across-the-board tax increases looming over the Capitol. 

In his budget address at the start of the two-year session, Governor Tom Wolf proposed a range of tax increases that would make even an EU minister cringe. At the end of the session, a reform plan to take the minimal first steps to address Pennsylvania’s public pension crisis didn’t even receive a vote in either chamber.

Add to it all this the five percent increase in state spending this year over last, General Fund tax collections not meeting expectations, and a governor still on a mission to increase taxes. The stage is set for next session.

“The escalating public pension crisis is more than a single fiscal challenge,” said PMA President David N. Taylor. “Even as it is driving the growing financial imbalance in the state budget, it also reveals state government’s inability to respond decisively to the most serious  issues. We are in a spiral of spending and debt that simply cannot be sustained.”

For the pension reform failure, we yet again cite the inordinate power the bureaucrat unions have over the legislative process. The unions have resisted even basic changes to the benefits of even future public employees at the expense of the taxpayers. Their influence over Democratic lawmakers, some Republicans, and the governor showed when House leadership couldn’t muster enough votes for passage – even with a 119-member majority. As Senate Majority Leader Jake Corman (R-Centre) noted, the passage was impossible when it was clear the governor was putting up “zero” votes for the plan.

It is possible that lawmakers will return when the political pressure subsides after the November 8 elections and again attempt passage. The urgent need for approval would supersede earlier agreements that lawmakers would no longer consider substantive legislation during Sine Die. For two major reasons, the timing would be best.

The two failing pension systems, SERS for state workers and PSERS for public school teachers, add $10 million every day to an unfunded liability now over $60 billion. The cost this year in General Fund dollars just to cover the interest on the unfunded liability is close to $3 billion.

The other reason is that if pension reform is put off until next session, it almost certainly becomes becomes a bargaining chip in the budget process - leverage for higher taxes. This is an unacceptable, inexcusable, and completely avoidable correlation of issues.

The pension reform plan that emerged from a conference committee called for new employees, starting in 2018, to select from three options, all requiring participation in varying levels of 401(k)-style plans. The change would more closely align public plans with those in the private sector. Current employees would have continued to be eligible for the traditional defined benefits plan that calculates payments based on years of service and top three years of salary.

State police and other law enforcement officials would have been exempt from the proposal, as would have been current legislators and judges. The proposed change would have applied only to newly elected legislators and judges.

One bright spot in all this is that the Republicans are expected to at least maintain, and possibly even increase their strong majorities in the House and Senate. (Senate majority stands at 31-19; House at 119-84). The Senate Republican Caucus might even reach 34 members, a veto-proof supermajority. Leadership could use this power as they did during the governor’s first budget to limit spending growth, prevent tax increases, and find additional savings in current spending.

At the inaugural “Monthly Business Briefing,” a joint effort of PMA and the PA Chamber of Business and Industry, Sen. Scott Wagner said, “If we don’t start to get our arms around the spending across the street (Capitol), we’re going to be faced with substantial tax increases. And I am not willing to vote for tax increases until we have exhausted every avenue and we have turned over every rock.” He emphatically concluded, “I can tell you, very few rocks have been turned over.”

The pension reform plan engineered by Senate Republican wouldn’t solve the fiscal problems in the cost of SERS and PSERS, but like the liquor reform bill the governor signed last year -- one of the paramount accomplishments this session -- it would be a start.

Action is long past due. In a nation of sinking public pension systems, Pennsylvania ranks ninth worst, according to a recent report by the American Legislative Exchange Council (ALEC).

“It’s a solid plan,” said Jonathan Williams, vice president for the American Legislative Exchange Council's (ALEC) Center for State Fiscal Reform, commenting on the most recent reform plan. “We think it’s a positive development.”

Public sentiment is behind the change as well.

Opinion polling conducted by the Commonwealth Foundation found most Pennsylvanians want to replace traditional, defined-benefit plans for state workers with plans similar to those taxpayers get at work, said Elizabeth Stelle, director for policy analysis for the Foundation.

The Legislature's hybrid plan doesn’t go as far as that, she said, but they supported it.

“It’s a compromise,” she said. “This legislation moves us in that direction and starts the cultural shift.”

It was a bitter start and end to last session, and it’s shaping up to be a bitter start to the new one. While providing no votes for pension reform, the governor also vetoed two bills that Republican lawmakers had devised to bring more transparency and accountability to government.

One bill would have reformed the Delaware River Port Authority (DRPA), an agency long-known for its insular politics, wasted toll revenue, and corrupt practices.

Chair of the Senate Transportation Committee, John Rafferty (R-Berks) and candidate for Attorney General, said that the Senate has been working on the reform bill since 2010 and held numerous public hearings about practices of the DRPA that needed to be more closely monitored. He added that a federal judge recently slammed the DRPA for secrecy in its contracting practices.

“The governor chose to veto a comprehensive reform measure simply because he doesn’t want the State Senate to confirm appointees to this very important board which has wide ranging power and authority and works in tandem with the state of New Jersey,” Rafferty said.

Another bill would have made permanent the commonwealth’s Inspector General’s office, which investigates waste in fraud and government. The bill established a cabinet-level post, subjecting the nominee for the office to a two-thirds confirmation vote by the Senate.

The office was created by executive order in 1987, and has continued on under the governor's oversight. The governor could shut it down whenever he chooses. It’s not beyond the realm of possibility. Last year, the governor shut down another agency, the Pennsylvania Employee Retirement Commission, after it estimated that the savings in a pension reform plan backed by the governor would be far less than promised.