Unmanageable

Two views from the BCCT

Pension poison
‘Unmanageable!’
Dramatically higher school district contributions to the state pension fund could push stressed taxpayers over the brink.

We’ve all heard it before: “There are no guarantees in life.” And some of us might have believed it. Wrong. Very wrong.

There is a guarantee in life and it's called the Public School Employees' Retirement System (PSERS). The state-mandated, taxpayer-funded pension system is as guaranteed as it gets.

We refer to Tuesday's Page 1 story, "Schools face huge pension hikes." The headline, while accurate, is incomplete. What you find out when you read the story is that it's taxpayers who face huge pension costs, because the enormous increases in pension contributions that school districts must, by law, begin making will be passed on to taxpayers.

This is yet another result of the economic meltdown. Like a lot of pension funds that are invested in the market, Pennsylvania's school employees fund has been losing money. A lot of it. Unlike private pension funds, the school employees' fund, or PSERS, is guaranteed.

On its Web site, the Pennsylvania State Education Association, also known as the teachers union, describes it this way: "Unlike private-sector defined benefit pension plans that have made the news in recent years, PSERS pensions are guaranteed by law as contractual agreements between the participants and the state of Pennsylvania. PSERS, essentially, is a separate fund set up by the state to earn investment returns that will help the state pay for the pension benefits. The pension obligations themselves are guaranteed by the state."

And that means, in the union's boastful words, "Current and future PSERS retirees' pension checks are not affected by market conditions."

It would have been nice if state lawmakers had insulated school tax bills from market conditions. But they didn't do that. They did hike their own pensions a whopping 50 percent a few years ago, and simultaneously increased school employees' pensions 25 percent - perhaps a thank-you for all those campaign contributions from the school employees' unions.

But it's taxpayers who have to fund those increases and, likewise, who have to make up for the huge hit the pension fund has taken. Call it a double whammy.

The heavy hits will begin in the 2012-13 school year, when districts' share of the pension contribution, now at 4.78 percent, could jump to 30.22 percent. The rate will hover in the 30 to 35 percent range for a decade. "It could cost us $6.6 million more" in 2012-13, one local school district business manager fretted, adding: "These numbers aren't manageable."

No, they're not. Not for the taxpayers on whose financial backs the school districts ride.

And that means our state lawmakers must do something. They can't ignore this one - or come up with another politically safe but ultimately phony solution like they've done time and again on tax reform. They've got to step up - AND FIX IT!

Here are a couple of ideas: According to a report in the Wall Street Journal, Wisconsin, which likewise has sustained huge pension losses, will cut public employees' pension benefits. In Virginia, lawmakers are considering a bill that would freeze the current pension plan for public employees and replace it with a 401(k) for all future hires. The Pennsylvania Senate considered a similar bill in 2007, but it went nowhere. RESURRECT IT!

And how about that gluttonous pension hike lawmakers brazenly bestowed on themselves and school employees? It was selfish then - ruinous now. REPEAL IT!

Look, change won't come easy, we know that. The state teachers union for one will fight any alterations to its pot of retirement gold. On its Web site, the union notes that "defined contribution plans, e.g. 401(k) and 403(b), are affected" by the current economic crisis. Those are the retirement plans regular people have. And it urges union members to circle the wagons: "We can expect continued political attacks on PSERS, but at a time when many individual investors have suffered considerable losses on their 401(k) and 403(b) retirement accounts, the merits of a defined benefit pension system have become obvious...

"That's why it is important for us to do everything in our power to protect and strengthen our defined benefit pension plan."

The battle looms. Who will lawmakers fight for?

And the answer?

Blatant conflicts standard fare in corrupt Harrisburg
By TIM POTTS

Tim Potts is executive director of Democracy Rising Pennsylvania, a non-profit watchdog organization dedicated to the reform of state government.

When foxes guard the henhouse, the hens lose. Now substitute Pennsylvania lawmakers for foxes, the capitol for the henhouse and citizens for the hens. Guess who loses.

This week, Pittsburgh’s WTAE-TV provided yet another example of how lawmakers manage to use their position to feather their own nests with blatant conflicts of interest that are perfectly and shamefully legal. Investigative reporter Jim Parsons documented that a large number of state lawmakers combine outside income from private ventures with assignments on committees that oversee those same ventures. Among the conflicts:

A lawmaker who is employed by a company that is regulated by a committee on which the lawmaker sits. As if that isn’t enough, the lawmaker also rents his district office space from his employer.

A lawmaker who is both on the board of a company that sells insurance and on the House Insurance Committee.

A lawmaker who both owns a firm that consults with agribusinesses and is chair of the Senate Agriculture Committee.

Lawmakers excuse serving two masters by claiming that their outside occupations bring expertise to committee work. But there is no shortage of expertise available to committees without creating such conflicts of interest. To use a timely example, what bankers sitting on the Banking Committee would blow the whistle on financial derivatives from which they and their employers are making tons of money?

As Parsons’ report points out, this kind of self-dealing is not illegal. The lawmakers, after all, are the ones who would have to make it so, and they, like hedge fund managers, have every incentive to let their own good times roll, no matter how much it costs the public.

Don’t we pay lawmakers enough that they should forego outside employment that conflicts with their duties on behalf of the taxpayers? Or at least be barred from committees that most often write the final form of legislation that the full House and Senate consider?

WAMs — The Mother of All Conflicts

One of the things the conviction of former state Sen. Vince Fumo and the latest charges against former state Rep. Mike Veon have in common is the conspicuous conflicts of interest made possible by the largely secret and unaccountable Walking Around Money (WAMs). Among Fumo’s 137 convictions for public corruption were $1.5 million in WAMs that Fumo laundered through a Philadelphia non-profit. The allegations filed against Veon included nearly $10 million in WAMs allegedly laundered through his own non-profit, the Beaver Initiatve for Growth (BIG).

Both cases point out the potential dangers of allowing lawmakers to appropriate money to themselves. While not all such arrangements conclude with illegal acts, it’s hard to know because absent a grand jury investigation, no one’s minding that henhouse either. The Department of Community and Economic Development that is the source of most WAMs allows WAM recipients to choose their own auditors thereby failing to ensure that either Fumo’s or Veon’s high-profile WAMs were being used legally. Does anyone think they do a better job with the less visible WAMs?

Another problem with WAMs is that they come at the expense of other things. When lawmakers get to choose whether to give money to themselves or to food banks, domestic violence prevention, schools or back to taxpayers, who gets the money? How many taxpayers think the best use of $160,000 a year was to pay Veon’s brother to do nothing of benefit for taxpayers? The only way to ensure that lawmakers’ interests aren’t conflicted is to eliminate the conflicts as much as humanly possible.

What’s the solution?

All of this will change when citizens decide to stop wasting their money on corruption and on political leaders who abide corruption.

A year from today, the entire House and half of the Senate will be asking for your vote. If they don’t clean up the capitol, will they get it?