“Pension Tapeworm” Devouring PA Budget

Pennsylvania Governor Tom Corbett just added his name to the growing list of governors taking on runaway pension costs in their state. In a recent interview, Corbett likened pension expenses to a “tapeworm” slowly devouring more and more revenue from the budget. The comparison is apt: The growth in pension costs is now equal to 62 percent of all new revenue and it is growing faster each year.
How did Pennsylvania get here? The culprits are all-too familiar: excessively optimistic predictions on investment returns, powerful public unions pushing back against any and all changes to their pensions, and years of timid political leadership willing to put off painful changes rather than upset an important constituency. The Pottsville Mercury lays out the story:

In 2001, the Legislature moved to enhance member benefits by increasing the multiplier that calculates pension amounts. In 2002, employer contributions from school districts and government were capped. In 2003, Act 40 was passed to restrain future growth in employer contributions.

And, throughout that time period, investment growth was nil, sending the funds into a downward spiral.

In response, Corbett has announced that pension reform—and not property taxes—will be the first item on the agenda in 2013.
Hopefully he has better luck than his colleague in Illinois, where continuing political deadlock over pension reform efforts has thwarted the Democratic governor’s efforts to whip the state’s finances into shape.