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op ed


By Chris Comisac

Well, folks, Pennsylvania is going to get some more “pension reform.”

I know, the House of Representatives has yet to vote on Senate Bill 1, the latest lacking legislation held up by lawmakers as “reform,” but this is happening.

So what does that mean?

As someone recently said to me, with us “accomplishing pension reform,” we can move on to doing pension reform.

The actuarial note analyzing the legislation indicates there will be no pension system savings, and the risk-shifting within SB1 only matters should the systems incur significant investment shortfalls a couple decades from now. Those shortfalls, should they occur two to three decades from now, will still add more debt to our debt-ridden systems, it just won’t be quite as much added debt – the “historic” savings we’re told SB1 would deliver would come at a significant cost.

It’s pretty clear passing anything with the title “pension reform” has become the goal, not passing something that’s worth passing.

I’m reminded of about two years ago, when I wrote a column in which I argued – with regard to both property taxes and public pensions – doing something isn’t always better than doing nothing.

Carefully reviewing the analysis of this session’s version of “pension reform,” it appears as though lawmakers have found a way to do both: look like they’re doing something while doing nothing.

If this is the “politics of the possible,” we have hit another new low in the Pennsylvania State Capitol.

The comparison between current law and SB1 for both the State Employees’ Retirement System (SERS) and the Public School Employees’ Retirement System (PSERS) shows little-to-no difference regarding the impacts on employer contribution rates, pension funding ratios and the unfunded accrued liability going forward during the next three decades.

So if accomplishing that is the best we can do, then why vote SB1 in the first place?

We’re told by SB1 proponents it’s because the legislation is “transformative,” that it puts the pension systems on the path to future fiscal health because it reduces pension risk for state taxpayers.

It’s not exactly that, but the analysis of SB1 by actuarial firm Milliman notes a future shift in risk (although at least 30 percent of the state government workforce is exempted from this risk shift): “Over time, the bill also reduces future risk exposure because it transfers a portion of retirement benefits to a DC [defined contribution] plan in which the member assumes investment and longevity risks. The provisions of the bill apply only to new members, and the full reduction in risk exposure will be phased-in over several decades as new employees are hired, become vested and ultimately retire.”

But SB1 still maintains a defined benefit plan that is subject to the political and financial winds that blew up PSERS’ and SERS’ unfunded liability to a combined $76 billion. So while exposing state taxpayers to slightly less risk, there’s still plenty of risk for which current and future Pennsylvanians will be financially responsible (not to mention the $76 billion, and growing, debt already on the books).

It’s true that state taxpayers would continue to be exposed to risk even if the current defined benefit plans were closed, and even if they were fully funded today (they’re obviously not).

Because of the way defined benefit plans work (even after they’re closed), underfunding can occur if the systems’ investment returns come up short, the systems fail to meet the other assumptions built into the costs of the defined benefit plans or lawmakers decide they don’t wish to pay the contributions they need to pay. We’ve seen all three happen in Pennsylvania annually during the better part of the last two decades.

None of that occurs with a defined contribution plan.

So if the risk of a DB plan falling short is the top concern as we’re told by SB1 proponents, why choose a less-than-half-measure like Senate Bill 1 that continues the DB plan, albeit a slightly smaller DB plan?

If the upfront costs of SB1 – and there are greater costs associated with the bill’s changes (including the yet-to-be-discussed roughly $50 million cost to the pension systems to implement the incredibly complex three-tiered benefit plan proposal) – are worth the potential of only partial risk shifting in 20 to 30 years, then why not do the whole enchilada?

Pull the Band-Aid off in one quick rip, instead of what amounts to a slow, painful, centimeter-by-centimeter removal – with all of that pain borne and endured by Pennsylvania taxpayers – that doesn’t end up removing the Band-Aid; in Michigan (where their pension problems are smaller than ours), that state’s failed hybrid pension plan was recently referred to as “a Band-Aid on a bullet wound” by one of that state’s lawmakers.

Just put every new employee – no exemptions – into a standalone DC plan.

I know, I know – “We can’t get the votes for that” is the refrain from some legislative leaders who, if given their druthers, would drop SB1 in a second for something that accomplishes a real change, even if that change also comes two to three decades down the road.

In addition to making needed funding reforms – such as shorter amortization periods for both DB plans, as recommended by the actuary that produced the SB1 analysis – to reduce the risk of an underfunded DB plan, a standalone DC plan for everyone would eventually simplify the retirement systems as well as completely eliminate the risk borne by taxpayers, once the only active plan for SERS and PSERS is the DC plan (which would take several decades to occur).

That would be good public policy.

Obviously it’s important to get the votes to send legislation to a governor that’s willing to sign it, but when did that become the definition of good public policy?

If you’re willing to make no impact on employer contributions or the unfunded liability during the next two decades anyway – which describes SB1 – then why not keep pushing a few more years for legislation that puts SB1 to shame on risk transfer?

Sometimes you have to try – and, yes, fail once in a while – to accomplish your goals. Legislative Republicans would do well to remember the Fiscal Year 2015-16 state budget, if they’ve forgotten that lesson, or maybe Act 120 of 2010, the last “pension reform” which was supposed to fix the things lawmakers are once again trying to fix (and the current “fix” doesn’t look much different, actuarially speaking, than Act 120).

There’s been a lot of failure to accomplish the goal of pension reform the last several years – as evidenced by the continued growth of the pension systems’ unfunded liability – but most of those failures involved bills that were better (some only marginally so) than SB1.

Adopting SB1 would simply be another failure a future General Assembly will have to address.

Chris Comisac is Capitolwire Bureau Chief.



By Tony May


Give Pennsylvania state government some credit.  It has put the Commonwealth on the cutting edge in recent years of some important trends that have slowed the slow slide into Rust Belt decay.

The state authorized casino gaming which has created thousands of new jobs and generated billions in state revenue.  It aided and abetted the birth and growth of the “tight gas” industry making Pennsylvania one of the largest producers of natural gas in the nation.  It countered the national anti-tax trend and authorized an overhaul of the state’s funding strategy for transportation funding.  In a time when Congress has failed in its responsibilities to write a new national transportation policy and fund it, Pennsylvania has turned the corner on replacing and upgrading obsolete bridges and restoring and expanding highways.  And it about to join the growing number of states legalizing cannabis to heal the sick, create jobs and add needed state tax revenues.

Yet Pennsylvania still lags behind other states in population growth, average and median family income, economic development and other vital signs of a thriving economy. So what one, single thing can the General Assembly and the Governor do to get ahead of the curve and increase the rate of economic growth and restore actual population growth to keep Pennsylvania competitive among the states?

The answer is: be more like California – the good aspects of California.  The “Golden State” is unafraid to see itself as an outlier, a trend-setter and innovator.  Pennsylvania is more inclined to avoid sticking out like a sore thumb.  It doesn’t mean that we need threaten to secede from the union, ala California Gov. Jerry Brown.  It means that we need to work harder to chart our own future independent of the largesse of the federal government – something that looks like it might go the way of the dodo bird anyway.

A good place to start would be to evaluate Pennsylvania’s unused capacity and find ways to increase utilization on existing resources.  One of the reasons Pennsylvania faces bitter annual state budget fights is because the decay of our existing economic engine is throwing off less and less cash.  The first factor to address here is population stagnation.

Outside of a few key, mostly suburban counties, Pennsylvania’s population is not growing.  While an increasing population would add to demand for services, it is likely that new residents would generate more in economic demand than they would consume in state and local services.  This would be true even of immigrants from war torn countries.

Another sector that is under-utilized is higher education, particularly our state-owned universities.  Attracting out-pf-state students (perhaps even international students) would help our state-owned schools operate more efficiently.  Because they are operating, for the most part, under capacity, increasing the number of higher-revenue non-resident students would not be denying access to qualified in-state students.  The bottom line would be an economic boost in 14 Pennsylvania non-urban communities.

Third on the list would be a state approach to increase demand for home ownership aimed primarily at third class cities and boroughs.  Pennsylvania’s towns and cities are being hollowed out.  The state should investigate strategies to attract new residents to small  towns where thousands of dwellings stand vacant and decaying.

The best part is that most Pennsylvanians would relish the challenge.  Every Pennsylvania community has local pride; it would be easy to transfer that enthusiasm to support for a state growth effort.



By Tony May


In pre-Eisenhower America, every school kid was aware of Popeye, the cartoon character’s spendthrift friend, J. Wellington Wimpy, whose signature gag line was, “I will gladly pay you Tuesday for a hamburger today.”  But, the roly poly Mr. Wimpy never paid – although he always got his hamburger.

It’s not nearly so hilarious when J. Wellington Wimpy turns out to be your state government and “I will gladly pay you Tuesday” is a basic tenet of what has passed for budgeting over the past decade or more.

The current state budget crisis isn’t Gov. Tom Wolf’s fault.  It’s not even the fault of the current Republican-controlled state legislature.  It’s been caused by application, again and again, over years and years of the “Wimpy Principal” of budgeting.  It works out like this:  If you can eat the hamburger, do it, and pretend to pay for it by shifting funds around between one state account or another to conceal the fact that the bill has been passed off down the road.

The result? What the state’s non-partisan Independent Fiscal Office has defined as a $1.9 billion “structural deficit.”

What’s that?  According to the Financial Times, it’s a “budget deficit that results from a fundamental imbalance in government receipts and expenditures, as opposed to one based on one-off or short-term factors.

In other words, it doesn’t cover new programs or policies like increasing aid to education or hiring new inspectors in the Department of Environmental Protection,  It means state government continuing existing state programs – what some call “the cost to carry” through day to day business.

Why are we talking about $1.9 billion instead of the $2.4 billion Governor Wolf says we need to balance the budget AND increase aid to education?  Because it means that even if legislators figure out some way to thwart the Governor’s goal of getting more money to urban and struggling school districts, it means there’s still an elephant lurking in the corner of the room that’s left a big, steaming pile of bills that cannot be paid without increasing some taxes or other.

Policy-makers in Harrisburg have done a disservice to taxpayers  by suggesting these bills don’t have to be paid – or don’t exist.

Yes, doing nothing is an option – one that seems to have been chosen as the least painful of the choices available.  By stretching the boundaries each time the state faces a budget stalemate, we’ve changed public policy from a hard and fast “no budget/no government” to “maybe we can pay public safety employees” to “we can pay to keep critical services going” to today’s climate where money is flowing in dribs and drabs to any wheel of government that squeaks enough.

It’s more or less the flip side of the mantra “we should budget just like a family does – if you don’t have the money, don’t spend it.”

The new government approach seems to be how most families really budget – you pay the bills you have to pay; then you pay the bills you can pay; and, if you have any money left over, you take the kids out for ice cream.

Last year, the Governor proposed the budgetary equivalent of buying a 40 foot Winnebago and taking the family on a six week vacation to Disneyland.  And the legislature said no.  This year, he’s proposed a two week camping trip involving sleeping out under the stars and roto-tilling the back yard and planting truck crops.

But there is still the reality of taxes.  Wolf says we can have the Winnebago AND the truck garden if we would just raise the personal income tax one-third of one percent (to 3.4%) and expand the sales tax to include basic cable TV, movie theater admissions and digital downloads plus enact the natural gas extraction tax and increase a couple of business taxes.  We can fill the structural deficit with just the income tax hike and the visual entertainment tax.

Or, we can gladly eat a hamburger today and pay on Tuesday.  Or not.



State Sen. Daylin LeachBy Sen. Daylin Leach

This past week, I, and three members of my legislative staff flew to Denver, Colorado to see for ourselves what the complete legalization of cannabis looks like. Given the polls, what other states are doing, and the arc of history, it seems difficult to deny that legal cannabis is coming to Pennsylvania fairly soon. We wanted to make sure we understood how it works and what Colorado did right, and wrong, in an effort to ensure we do this the right way when the time comes.

We packed as much information-gathering as we could into our three days. We toured two facilities where the marijuana is grown, one lab where it is processed, one where it is tested for potency and impurities and two dispensaries, which are essentially marijuana stores. We then visited the headquarters of the National Conference of State Legislators to discuss trends in legislation.

We also tried to spend some time just interacting with Denver. We wanted to see how people were living their lives with these new policies in place. How noticeable is legal marijuana on the streets, in restaurants, at a Rockies game? Is life different? What would ending prohibition mean day-to-day here in Pennsylvania? Here is what we have found:

The thing that became most clear during our trip is what a tremendous economic opportunity this is. The larger grow facility we toured employs 65 people in high-paying horticultural jobs. The labs we saw employed doctors, medical technicians, mechanical engineers and extensive support staff. The dispensaries employed security, technicians, and even the sales force, known as “bud-tenders,” had to be highly educated about their products, and thus commanded a very good salary.

Further, the tax revenues coming into the state are astronomical. It is estimated that in the first six months of legal cannabis, the State of Colorado has pulled in well over $50 million in direct tax revenues, plus millions more from licensing fees, and indirect businesses such as paraphernalia companies, apparel, tourism, etc. Also, residential as well as warehouse real estate (that would otherwise be dilapidated and abandoned) is being snapped up at premium prices. This is all on top of the millions saved by not having to prosecute tens of thousands of people for marijuana offenses.

Beyond the money, it struck us how professional everyone involved in the business is. Cannabis is highly regulated, and these regulations are strictly enforced. So you really have to know your business in order to succeed. Less serious people who got into the legal cannabis early have largely gone out of business.

As for the impact on society, what we saw and what we heard from locals we spoke to indicates it’s all been good. One obvious benefit is that sick people who need medical marijuana are getting it. Also, good people aren’t being thrown into the criminal justice system.

But beyond the obvious, crime is down and traffic accidents are down. It is true that a higher percentage of traffic accidents involve people who test positive for pot, but you would expect that since they didn’t test for it often prior to legalization.

It was also clear that Colorado has not turned into a state full of “stoners.” There is no noticeable change in productivity, absences from work or dropping out of school. If you didn’t know marijuana was legal in Colorado, you wouldn’t guess it from being out and about in the city. Smoking is illegal in public. And although we did see a few people smoking vape pens on the streets, that was only on Saturday night, and since people also smoke tobacco from vape pens, we can’t say for sure that they were even smoking marijuana.

The bottom line is that we saw a system that is working. The marijuana workforce is professional, skilled, and dedicated to serving their customers. Business is booming to the point that more than one person we talked to likened the coming cannabis explosion to the tech explosion of the ’90s.

In Colorado, we met hard-working people doing honest labor, and happy citizens responsibly living their lives in a prosperous and healthy state. The tragedy is that all of these people, every one of them would be criminals in Pennsylvania. We would arrest them, prosecute them, incarcerate some of them and ruin all of their lives. We’d kill their business and deny sick people medicine they need.

That is the true insanity of prohibition, and the primary reason it is on its way to the ash-heap of history.