Tom Corbett Is Absolutely Right About Pension Reform

It’s just that he’s handling it wrong.

Pennsylvania Gov. Tom Corbett, right, along with Lt. Gov. Jim Cawley, left; hold a news conference in his chambers addressing the state budget-spending plan for the new fiscal year that starts in less than 40 hours, Sunday, June 29, 2014 in Harrisburg, Pa. (AP Photo/Bradley C Bower)

AP Photo | Bradley C. Bower

He’s right, you know.

I’m talking about Tom Corbett. Our Governor. A man who probably doesn’t hear “you know Tom, you’re absolutely right” very often. Definitely not from many people on this side of the state. I’ve been disappointed by some of the Governor’s actions (or inactions) too – his lack of leadership on our schools, his lack of appearances in this area, his lack of courage when facing those protestors at Central High back in January. He may be a nice guy, but he doesn’t come across that way in the media. Yes, he’s a Republican and Philly is a Democratic stronghold. But even among Republicans here, Corbett’s popularity is tepid, at best.

But on one issue, the Governor is right: pension reform. He’s right to use the lack of pension reform measures as a reason to hold off on signing the state’s budget. He’s right to use it as a negotiating point in the funding of our schools. He’s right to fight for this unpopular measure even if it means depleting his already-depleted reserves of political capital this election year.

According to the Commonwealth’s website (pdf):

At the end of 2011, both (of the state’s pension systems) had a combined unfunded liability of $41 billion. At the end of 2012, that had increased to over $47 billion. This equates to an increase of more than $6 billion in one year, $510 million each month, or nearly $17 million for each day that elected officials did nothing to fix this problem. What’s worse, unfunded liability is expected to grow to over $65 billion by 2018. To address that liability, each household in Pennsylvania would need to contribute $13,000. In FY 2013-2014, taxpayers are expected to contribute $1.5 billion into the state pension systems. By FY 2017-2018, the taxpayers’ bill to is expected to rise to $4.3 billion. This is a nearly 200% increase in taxpayer contributions to in just 4 years. In total, increased pension contributions will cost each Pennsylvania family the equivalent of a 36% increase in the Personal Income Tax.

If this were a company’s balance sheet, the company would’ve been bankrupt years ago. We can’t afford this. Our debt is unsustainable. We can’t continue to finance our existing liabilities. Saying that the state will just magically “come up with the money” for our schools is sadly naïve. The state doesn’t have the money. There is no magic wand.

Corbett is right.

You could say that the answer is to just raise taxes, particularly on the wealthy. And that has merit. Yes, the wealthy should pay more. But be careful. Federal, local and other taxes have risen dramatically over the past few years. The “wealthy” (and psst … people making $200K per year aren’t doing bad, but they’re not as wealthy as you think) are already being forced to pay much more. This money is now being redirected from their control to the government’s control. Instead of “the wealthy” using this money to invest, spend, build, hire, and expand, they have to contract. Maybe even move to a lower tax environment. People with wealth want to keep their wealth. And if they have the opportunity to do so somewhere else, they will.

Corbett wants a 401(k) type plan for new state employees. And that has merit too. Most of the people I know working for a company wouldn’t even recognize the type of defined benefit pension plan that state and school district employees now enjoy. Most businesses long ago abandoned those plans as fiscally unsustainable. If it were up to me, I’d go a step further. I would also want to convert existing employees that have accumulated benefits over a certain amount to also be converted to a 401(k) type plan. Because some people in the government, even some of the retired ones, are pretty “wealthy” too. This combination of increased taxes and pension reform together would go a long way toward reducing our state’s fiscal problems and freeing up money for our schools.

Is there room for such a compromise? Philly mag’s Patrick Kerkstra thinks so: “Corbett and House Republicans argue, accurately, that the state is short on cash, and the demands on the treasury intense. But the shortage could be eased, if not eliminated. Indeed, the GOP Senate was clearly willing to accept some new taxes and fees. There’s the potential here for a grand deal, one that offers a lot to all sides. Republicans would get liquor privatization and meaningful pension reform, city Democrats would get more state and local funding for schools, as well as more state revenue overall.”

So is Corbett right to draw a line over pension reform, even make it a sticking point in the school funding debate? He is. It’s that important.

But unfortunately he’s handling it wrong. As a member of the voting public, I don’t know all that’s going on behind the closed doors of Harrisburg. I don’t care. Neither do the voters. We just want this fixed.  If Corbett really wants this to happen, then he will need to compromise. This isn’t about right and wrong. It’s not about winning and losing. It’s OK if you give something up in order to achieve your long term goals. Business people like me do this all the time. It’s what our employees and families expect from us. And it’s what we expect from our elected leaders.

Follow @GeneMarks on Twitter.

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  • claudineabelson

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    working from a macbook.this website C­a­s­h­d­u­t­i­e­s­.­C­O­M­

  • Dan

    Wow Phillymag who’s drunk at the editor’s desk today? You wrote an honest and complientary article about a Republican.

    Corbett 2014.

    • Scott Jaster

      couldn’t agree more. they got past their liberal agenda (in the beginning of the article you could tell they were fighting hard to go back to there usual ways), and presented the facts for what they are. Something needs to be done, and the answer is not ignoring the issue. I just hope state democrats can come to the same conclusion and actually try and help our state instead of ruining PA’s future in order to prevent Corbett from getting a win

  • Hunter M.

    Finally an article with sensibility and direction. Keep it coming Phillymag.

    Corbett for Gov 2014

  • 412 Libertarian

    Why should the wealthy pay more? It’s not their problem the state mismanaged the pensions. You trust the gov with retirement money that’s a disaster waiting to happen.

  • MKUltra

    Legalize marijuana, grow hemp, cut pensions, cut pay for legislature and state employees, cut health benefits for legislature and state employees, bring back KOZ zones but only with reduced operating taxes not to be a freebe for as many years as it was before, privatize liquor stores. These are just a quick bunch of options. If politicians werent so afraid of political suicide this task could be accomplished much faster!

  • scott_lewis

    I worked in the public sector for awhile and the agency I worked for made no contributions to Social Security and no contributions toward my pension (beyond promises to pay at some time in the future–but I didn’t stay long enough to collect).

    The easiest solution is to put public employees into Social Security like everyone else. The reason States won’t do this is that then they would ACTUALLY HAVE TO PAY THE EMPLOYER HALF. For example, my current employer pays half of my Social Security FICA contribution and I pay the other half. When I worked at a public agency, I paid my half of the pension contribution, but my employer just kept “deferring” their payments.

    I essentially lost five years of Social Security credit by working for a public agency, though in the long run I think I’ll be better off. Yes, some public employees are overpaid but I don’t begrudge many of the hard working ones their salaries. For example, at my agency, engineers made about $70K when they could easily make $100K+ at a private company (as I do now). If the pension is promised to them to make up for the crappy salary, then the State that makes the promise had better keep it.

    “I would also want to convert existing employees that have accumulated benefits over a certain amount to also be converted to a 401(k) type plan….” Would you support the same thing for people on Social Security? Many many public employees only get the pension and not S.S.