Pennsylvania Lawmakers Juggle Pensions, Liquor, Transportation

Legislation that would switch public pension systems for new Pennsylvania employees to a 401(k)-style plan in fiscal 2015 was under review by the Public Employee Retirement Commission on Tuesday.

The Senate’s finance committee last week approved such a bill while the House version cleared the state government committee. The changes would affect the $51 billion Pennsylvania Public School Employees’ Retirement System and the $26 billion Pennsylvania State Employees’ Retirement System.

Gov. Tom Corbett proposed pension overhaul in his budget plan, which is before the legislature during the final week of the session. Corbett’s advisors, and House and Senate leaders, are tweaking a budget likely to total around $28.3 billion. “We’re almost 100% agreed on the line items,” House Appropriations Committee Chairman William Adolph, R-Springfield, told reporters Tuesday afternoon.

Other priority initiatives for the governor include a $2.5 billion transportation spending bill and the privatization of state-run liquor stores.

Lawmakers embraced Corbett’s initiative to place future employees in the 401(k)-style defined contribution plan but rejected his proposals to cut benefits for most existing state and school workers and reduce taxpayers’ payroll contribution to pension plans next year.

Standard & Poor’s rates Pennsylvania’s general obligation bonds AA, while Moody’s Investors Service and Fitch Ratings assign Aa2 and AA-plus ratings, respectively. Standard & Poor’s and Moody’s downgraded Pennsylvania last summer, citing pension underfunding.

“There are several factors that are currently a strong threat to Pennsylvania’s ability to produce recurring structurally balanced spending plans. The key threat is unfunded pension liabilities, which are anticipated to deteriorate further in the near term due to underfunding,” Janney Capital Markets said in a report.

According to Janney, Pennsylvania’s funding ratio plummeted from a high of 97% in 2007 to 68% in 2011. “A sensitivity analysis shows that the funding level will continue to fall to the mid-high 50 range by 2017 unless changes are instituted,” the report added.

The Pew Center on the States considers 80% an acceptable threshold.

State budget director Charles Zogby said in an interview last week that without pension overhaul, Pennsylvania could face another downgrade from the rating agencies, which recently lowered Illinois. There, Gov. Pat Quinn has convened a special session of the legislature to deal with unfunded pension liability.

Meanwhile, a compromise bill that would enable bars, restaurants and beer distributors to sell all kinds of liquor and gradually phase out state-run stores cleared the Senate’s law and justice committee on Monday. The House already approved the measure. Corbett wants fees from liquor licenses, which he said could exceed $1 billion, to fund public education. Democrats would rather modernize the system rather than sell it. They say privatization could cost the state $200 million in annual revenue and jeopardize 4,000 state jobs.

The transportation bill, which the Senate passed, is stalled in the House, where Republicans want to lift the wholesale gasoline tax cap over 10 years instead of Corbett’s preferred five and to cut state funding for mass transit.

House GOP leaders also want to eliminate an increase in motor vehicle fees and a $100 surcharge on most traffic tickets.

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