State officials are calling Act 5 of 2017, the latest public pension reform effort, “historic.” So, too, is the director of policy analysis for the Commonwealth Foundation, Pennsylvania’s self-declared free-market think tank.
And the Pew Charitable Trusts, an independent global research and public policy organization, said the legislation would be “one of the most — if not the most — comprehensive and impactful reforms any state has implemented.”
Maybe it’s true Act 5 will turn out to be “comprehensive and impactful,” and someday will be looked upon as “historic.” But the unfortunate truth is that the pension changes will do nothing — zero, zilch, nada — to ease the crushing burden on school district budgets this year, or next year, or the next, or the next, or the next.
According to an actuarial note by the Independent Fiscal Office (IFO) on Act 5, not until 2034-35 are funds needed for the Public School Employees’ Retirement System (PSERS) projected to decline. By then, the IFO predicts, payments to PSERS are expected to approach 40 percent of payroll. So, for at least the next 17 years or so, school districts are looking at annual growth in the amount they (that is, taxpayers) must allocate toward pension obligations.
Consider a couple of examples. In the North Penn School District, pension costs have grown from $6.1 million in 2010-11 to $39.7 million for 2017-18. In Neshaminy, the jump has been from $8 million to over $25 million in just five years. And in Council Rock, where in 2010-11 its PSERS bill was 5.64 percent of salary, for 2017-18 the district will pay 32.57 percent of payroll — almost $36 million.
And there’s no relief in sight for nearly two decades.
What Act 5 does is shrink the traditional defined benefit pension and combine it with a 401(k)-type plan people in the private sector are most familiar with. But it only takes effect for school employees hired after July 1, 2019. And it ignores the monstrous $60 billion combined unfunded liability in PSERS and SERS (the State Employees’ Retirement System).
So while the legislation is something and certainly welcome after so many years of legislative foot-dragging, it falls far short of solving the problem and still leaves school districts, in particular, hung out to dry.
Thus, we’ll withhold the “historic” tag from Act 5. What was truly historic was the self-interest (call it greed if you want) of lawmakers who in 2001 chose to fatten their own pensions, plus their total lack of foresight in allowing school districts to lower their pension contributions for a time to nothing or just 1 or 2 percent.
Eventually, Act 5 will perhaps ease the pension crisis. But a big question is whether the schools and their taxpayers can hold out that long without further legislative intervention. Act 5 is correctly summed up as a baby step and nothing more.
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