Gov. Tom Corbett said he would decide after the holiday weekend whether to sign a $29.1 billion Pennsylvania budget that does nothing about the state's unfunded pension liability.
"Our review of the budget continues. We will look at it with all options on the table," Corbett told reporters late Wednesday at the State Capitol in Harrisburg.
Options include vetoing the budget or calling for a special session on pensions. Corbett said he would decide after he sees the companion fiscal-code bill, a granular adjunct to the budget that lawmakers approved Wednesday night.
"There's an interplay between the fiscal code and the budget," said Corbett, who must decide by July 11.
Pennsylvania's pension funding has repeatedly come under bond rating agency glare.
A Corbett-supported bill to merge defined-benefit and defined-contribution plans for state and school employees under a so-called hybrid plan never past it off the House floor. Barring a special session, the House will meet again in the regular fall session.
Standard & Poor's warned in April it could lower Pennsylvania's general obligation rating from AA if pension overhaul remains stalled. Last year, Fitch downgraded the state to AA from AA-plus, citing pensions. Moody's Investors Service assigns an Aa2 rating.
"There's no misunderstanding in the administration passing some meaningful pension reform would be a credit positive from a rating agency point of view," said William Rhodes, pubic finance chairman at Ballard Spahr LLP in Philadelphia.
Another downgrade to Pennsylvania would also affect interest rates on school district though the state's intercept program, Rhodes said.
Pennsylvania is one of several battleground states over pensions. The Pew Charitable Trust, citing new data for fiscal 2012, said state-run retirement systems had a $915 billion shortfall. When promises by local governments were factored in, the total pension debt was over $1 trillion.
"Pennsylvania is not alone, although certainly we are one of the problem states," said Rhodes.
Corbett said the unfunded liability would rise from $50 billion to $65 billion in three years. "We are spending 63 cents of every new dollar on pension costs. Doing nothing is not an option," he said.
Rep. Mike Tobash, R-Schuylkill, supported the hybrid bill. Rep. Glen Grell, R-Hampden Township, may revive his own legislation for the fall session.
The hybrid bill, which could slow down the escalation of the liability but not play catchup with the existing one, sat briefly this week in the House human services committee, where the chairman, Rep. Gene DiGirolamo, opposed it.
"It didn't do anything at all to address the unfunded liability," said DiGirolamo, a Bensalem Republican. "There were no savings in there for our school districts. There is no money in there or savings for the budget this year, next year or three years from now.
"I think we've got to get a different approach."
Richard Dreyfuss, a Hummelstown, Pa., actuary and an adjunct fellow at the Manhattan Institute for Policy Research, called the hybrid plan a "subterfuge" that further mask the significant continued underfunding of Pennsylvania's two pension plans, the State Employees Retirement System and the Public School Employees Retirement System.
"According to independent actuaries, if this proposed hybrid plan were valued using more conservative assumptions, there would likely be no savings. Moreover, it is far too late for such incremental reform efforts especially one which retains a defined benefit plan for new hires," said Dreyfuss, a former executive at Hershey Foods, where he oversaw benefit packages.
Separately, state lawmakers late Wednesday enabled Philadelphia to increase its cigarette tax by $2 per pack to fund its teetering school district. Corbett said the move would raise $80 million.
Last year the school district had to borrow $50 million from the city to open schools on time.