Dear PA Taxpayer: Pay Up

From the Wilkes-Barre Times-Leader.

Pa. pension funds tell lawmakers of major losses
By MARK SCOLFORO

Pennsylvania's two major public-sector pension plans on Tuesday gave state lawmakers the bracing news that together their investments lost more than $28 billion in value last year.

Officials who oversee the separate funds for state workers and public school employees also warned that a sharp increase in taxpayer subsidies looms because stock market losses will make a long-anticipated 2012 rate spike much steeper than recently projected.

The two funds' percentage losses on investments were similar. The value of State Employees' Retirement System investments dropped 28.6 percent in 2008, while Public School Employees' Retirement System investments fell 29.7 percent.

State Employees' Retirement System chairman Nicholas J. Maiale said such increases would represent a severe budgetary challenge for the state.

The State Employees' Retirement System, which benefits mostly state workers, valued its investments at $24 billion as of Dec. 31, a drop of $11.5 billion for the year. Maiale said investments did better than the overall market in January but still lost about 3 percent.

The school retirement system, which benefits teachers and other school employees, reported a six-month loss in value of $17.3 billion to $45.4 billion from the beginning of the state's fiscal year on July 1 to Dec. 31. A dollar total for the year was not immediately available.

The state employees' pension fund said the losses mean employer contributions could approach 29 percent of payroll by 2012, far higher than had been expected after its investments had generated impressive returns in recent years. For most people enrolled in the State Employees' Retirement System, the government is their employer. The system's current employer contribution rate is 4 percent of payroll.

The teachers' pension fund said it projects its spike could exceed 28 percent for the 2012-13 year. If that occurs, the pain will be felt acutely by people who pay property taxes to fund school districts. The current rate is 4.76 percent.

"Ultimately we've got to hope that the market does grow" in the coming years, said Appropriations Chairman Dwight Evans, D-Philadelphia.

No additional pension payments that might serve to reduce the spike are included in the 2009-10 state budget outlined by Gov. Ed Rendell two weeks ago.

Although they are often referred to as spikes, the higher rates in 2012 will more closely resemble the start of a higher plateau. They are expected to usher in a lengthy period of much higher payments by taxpayers.

The spike has its origins in a 2001 law that increased pension benefits for most legislators by 50 percent, with 25 percent increases given to state workers and school employees.

Retirees, who did not benefit from that change, then clamored for a cost-of-living increase, which the Legislature passed the next year. In 2003, with a big increase in mandatory pension payments about to hit, the Legislature and Rendell struck a deal to delay most of the pain for a decade.

The day of reckoning is now only a few years away.

The pension fund executives were among the experts appearing at an all-day meeting of the House Appropriations Committee as it began consideration of Rendell's proposed budget.

Ron Snell with the National Conference of State Legislatures told the committee that states do not typically rebound immediately after an economic tide turns.

"Even if the economy hits bottom toward the end of this year, we would expect state fiscal recovery to lag that," Snell said.

Another witness, Acting Revenue Secretary Stephen Stetler, said Rendell's proposed natural-gas extraction tax is projected to bring in $632 million a year by 2013-14. Another new tax the governor wants, on video poker, would eventually produce $550 million annually, he said.

State Treasurer Rob McCord, who was sworn in last month, said his department has "chronic, hazardous and time-sensitive" shortcomings in its technology systems. He said the department's aging mainframe computer broke down over Thanksgiving and required a $10,000-a-day patch through a Houston company.