By Andrew Staub | PA Independent
Pennsylvania fails to list $53 billion in debt on its balance sheet, giving it the third-most hidden debt among 10 Northeast states.
Maybe it’s no surprise then that state lawmakers have all but ignored Pennsylvania’s monstrous unfunded pension liability.
Pension reform remains one of the biggest political hot potatoes for policymakers, and Chicago-based Truth in Accounting’s annual Financial State of the States report debts again highlights problem facing lawmakers .
The think tank found, despite any rhetoric that lawmakers passed a balanced budget, Pennsylvania actually has a $66 billion shortfall. Each taxpayer’s share of the state debt amounts to $15,600, giving Pennsylvania the 11th-highest taxpayer burden in the country.
Much of that debt can be traced to retirement benefits, which represent more than 50 percent of state bills. The unfunded liabilities have accumulated, as the state promised billions of dollars in benefits to retirees without adequately funding them, according to Truth in Accounting.
“Unless these pension and retirees’ health care benefits are renegotiated, future taxpayers will be burdened with paying for these benefits without receiving any corresponding government services or benefits,” Truth In Accounting determined.
Lawmakers know about the issue but have failed to tackle the problem, choosing instead to try to change retirement benefits for new hires instead of finding a way to pay down a $53 billion pension debt.
Rick Dreyfuss, a retired actuary and pension expert with the Manhattan Institute, said most pension reform legislation has failed to address the unfunded liability. Even Senate Bill 1, the plan that Republicans hailed as “real reform,” kicks the proverbial can down the road, Dreyfuss said.
The unfunded liability has ballooned, thanks to chronic under-funding of retirement systems. Investment returns that fall below rosy assumptions can also exacerbate the problem, Dreyfuss said. Ultimately, lawmakers lack the political will to raise revenue or cut programs to fill the hole, he said.
As Truth in Accounting says, the debt eventually will catch up to the state. Lawmakers will have to address solvency concerns, and people will have to pay.
“I can say, on one hand, it is not a crisis tomorrow,’ Dreyfuss said, “but given the long-term nature of those commitments, if we’re not systematically building up these asset bases through higher contributors, we’re going to be at risk long-term.”
Moving new hires into the 401(k) plans prevalent in the private sector would stop new employees from adding to the unfunded liability, but it would not cap it, Dreyfuss said.
Pennsylvania doesn’t clearly disclose the obligations, either. It reported just $3.7 billion of retirement liabilities, leaving another $52.7 billion off its balance sheet, according to Truth in Accounting.
New accounting rules that go into effect in fiscal 2015 will require states to report the full amount of their unfunded pension liabilities on the face of their balance sheets.
Barry Shutt, a retired state worker who has taken up a post almost daily just outside the Capitol cafeteria to lobby for pension reform, is well-aware of the problem.
Any budget that fails to address the unfunded liability cannot be considered balanced, and it’s frustrating to see lawmakers so unwilling to address a problem that could wreak havoc on future generations, Shutt said.
They’re reminiscent of the “pod people” from the 1950s’ science-fiction film “The Invasion of the Body Snatchers,” in which alien invaders duplicate humans while they sleep, Shutt said.
“That’s what happens,” Shutt said. “These guys run for office to change Harrisburg, but then, like a scene from “The Body Snatchers,” they get to Harrisburg and too many of them fall asleep and are taken over.”