Tom Corbett Is Absolutely Right About Pension Reform

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.