"None of the proposals seem to have a goal of regaining structural balance that will improve credit quality," Tom Kozlik, a managing director at Janney Capital Markets, said of pension legislation in Pennsylvania.

HARRISBURG, Pa. -- An elderly man sitting in downtown Harrisburg's Strawberry Square mall let out a deep sigh.

"How the hell did they mess up the pensions?" he said. "How did they wind up with so much debt?"

Up North 3rd Street at the capitol complex, many state officials and lawmakers are asking the same question.

Pennsylvania, which is staring at a combined $53 billion unfunded liability for its two major statewide employee pension funds and a further $8 billion among 562 communities that state Auditor General Eugene DePasquale has labeled distressed, is considering a plethora of pension-overhaul related bills.

Given the political gridlock at the capitol - Gov. Tom Wolf is a Democrat, both legislative branches are GOP-controlled - prospects for meaningful change are slim, say capital markets analysts. Several bills are before lawmakers, raising the possibility of legislation too watered-down to be effective.

"None of the proposals seem to have a goal of regaining structural balance that will improve credit quality," said Tom Kozlik, a managing director at Janney Capital Markets in Philadelphia. "Time is working against lawmakers on this issue."

The session is scheduled to end June 30, although it could run late depending on budget deliberations. Pennsylvania lawmakers also hold a fall session.

All three major bond ratings agencies last year lowered Pennsylvania's general obligation bond rating. Moody's Investors Service rates the state Aa3, while Fitch Ratings and Standard & Poor's rate them AA-minus.

"Employment growth and gross domestic product growth are underperforming the nation as a whole and that's an important part of the overall credit picture for the state's credit quality," said Paul Mansour, head of municipal research at asset management firm Conning in Hartford, Conn. "It is not just about pension underfunding."

The Keystone State is but one battleground in nationwide public pension saga that has been at the center of municipal bankruptcies in Detroit; Central Falls, R.I.; and Vallejo, Stockton and San Bernardino, Calif.

This year, courts have issued rulings with varying implications on public pensions in Illinois, Oregon and most recently, New Jersey. The latter's Supreme Court ruled June 9 that Gov. Chris Christie can skip pension payments promised under a law passed in 2011.

In Rhode Island, meanwhile, a class-action settlement ending a protracted challenge to a landmark pension law, also enacted in 2011, received judicial blessing and now needs only a sign-off from lawmakers.

"This is one of the most underreported economic issues in America," said Anthony Figliola. vice president of Empire Government Strategies in Uniondale, N.Y. "However, its impact will be felt in state capitals across the country who are struggling to stay afloat amid out of control employee pension obligations."

The unfunded pension liability problem has two parts, said bankruptcy expert James Spiotto, a managing director at Chapman Strategic Advisors LLC in Chicago.

First is identifying the contractual obligation and whether it's adjustable. Second, whether that obligation can be paid legally -- given state constitutional and statutory limitations on debts and taxes -- and practically, by not crowding out funding for necessary governmental services and needed infrastructure.

"The recent New Jersey Supreme Court opinion addressed the second part and found legally promised ARC [actuarially required contribution] payments for pensions violated the constitutional debt limits and was thereby unconstitutional," he said. "Even if there is the conclusion that the pension obligations are legal and valid and cannot be unilaterally adjusted, there remains the overriding issue of how can it be paid in reality."

Mandating full payments of pension obligations under all circumstances, even to the exclusion of the full funding of necessary services for health, safety and welfare, is unwise, Spiotto said. Reasonable adjustments, he added, acknowledge the reality of limited revenues.

Spiotto said infrastructure investment in distressed cities is critical.

"As a practical matter, and we've seen this in Detroit, Stockton, San Bernardino and Jefferson County, if you do not reinvest in the municipality or the state, you'll wind up with real issues. The name of the game is how do you shore up these substantial [liabilities]? That's always a question and people have to sort through the figures."

In Pennsylvania, State Rep. John McGinnis, R-Logan Township, worries that without fixes, the State Employees' Retirement System and the Public School Employees' Retirement System will dry up in 15 to 20 years, in which case pension costs could consume up to 50% of the state operating budget.

McGinnis calls that possible day of reckoning "D-Day" -- D for depletion - and estimates that interest alone on the unfunded liability is costing Pennsylvania taxpayers $130 per second, amounting to $4.1 billion per year.

His House Bill 900 would shorten the amortization period for SERS and PSERS from 30 years to 20. According to McGinnis, it would ramp up the contribution from $4.1 billion to $6.8 billion in the first year, then level off thereafter. "The first lift is the only tough lift," he said.

Getting that initial expense past a budget-conscious House and Senate, though, makes the lift that much tougher.

"Mr. McGinnis, as sharp as he is with the numbers crunching, is not equipped for the politicking. These are entrenched career people," said Barry Shutt, 67, a retired Agriculture Department employee from Lower Paxton Township, Pa., just outside Harrisburg.

"I'm not that wrapped up in the bond ratings, but I hope they get another downgrade just to wake people up," he said. "They deserve one. They only seem to manage by crisis."

According to Shutt, the window for change may close this year, given the state elections pending in 2016. As Manhattan Institute for Policy Research adjunct fellow Richard Dreyfuss often says, no political upside exists for fixing pensions correctly.

Wolf has baked $3 billion of pension obligation bonds - a controversial among the capital markets - into his proposed $30 billion budget for fiscal 2016.

Other proposed legislation includes the much-headlined Senate Bill 1, which cleared the Senate and is before the House. The 410-page bill, the size of which boggles even proponents -- would put new employees into a 401(k)-style defined contribution plan while letting current employees stay in the traditional defined-benefit public pension plan and decide whether to contribute more to maintain current benefit levels or take a benefit reduction instead.

In addition, Sen. John Eichelberger, R-Blair Township, has proposed putting new municipal employees into a defined-contribution, 401(k)-style plan. His House Bill 755 would enable current and retired employees to retain all rights and benefits under their defined-benefit plans.

McGinnis, a retired Penn State University finance professor who represents the Altoona area, opposed merging his bill into any of the others. "My bill is saleable on its own merits," he said in an interview. "If they put it under SB1, the whole thing goes down in flames."

As Pennsylvania weighs multiple pension bills, Connecticut considered nothing similar en route to passing its $40.2 billion biennial budget. Its own controversies included a spike in business taxes that prompted corporate biggies Aetna Inc. and General Electric to openly question whether they would stay in the state. In the face of such heat, Gov. Dannel Malloy on Friday announced a rollback on some tax increases.

Not one lawmaker, meanwhile, filed a bill related to pension liability.

"That's another thing we have to take a serious look at," said state Sen. Scott Frantz, R-Greenwich.

Conning's Mansour, in a recent interview, put Connecticut in the "second tier of concern" for pensions. The state had a $24.5 billion unfunded liability, less than 50% funded, according to a 2014 Pew Charitable Trusts report.

In Rhode Island, lawmakers are about to put final approval on the settlement on a protracted challenge to a landmark 2011 law, which state Superior Court Justice Sarah Taft-Carter approved on June 9. Taft-Carter, reflecting the views of many in the Ocean State, said continuing the litigation would take time, create uncertainty and cost money.

The pension bill created a hybrid plan merging defined-benefit plans with 401(k)-style plans, among other measures. Gov. Gina Raimondo, who championed the legislation as general treasurer, said the new settlement preserves 92% of the savings from the 2011 legislation.

Further uncertainty could also have hurt Rhode Island in the capital markets.

Litigation fatigue took hold, according to St. John's University finance and law professor Anthony Sabino of Mineola, N.Y. "The judge's comments that the settlement was not perfect, but fair, were spot on," he said. "That's the nature of all settlements. It is an agreement that both sides might not love, but they can live with it, and that is what matters."

Controversy, however, simmers in the Ocean State. Benchmark Financial Services Inc., a firm founded by former Securities and Exchange Commission lawyer Edward "Ted" Seidle, said in a crowdfunded report in early June that the pension redesign has already cost the fund $1.4 billion, and that total preventable losses amount to nearly $2 billion.

"Twenty-twenty hindsight is not required to conclude these losses were both probable and easily preventable," said the report, which accused state officials of secrecy.

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