A Pennsylvania lawmaker introduced a three-point plan to overhaul two statewide pension systems that includes issuing billions of dollars in pension obligation bonds.
The systems have a combined unfunded liability exceeding $45 billion.
Rep. Glen Grell, R-Hampden Township, said at a capitol news conference in Harrisburg late Monday morning that Pennsylvania must enact legislation now or face further downgrades from the credit rating agencies.
Fitch Ratings in July lowered Pennsylvania's general obligation bonds to AA, with a negative outlook, from AA-plus. Moody's Investors Service a year earlier dropped the Keystone State to Aa2 from Aa1.
Both cited pension liabilities among other factors.
Standard & Poor's also rates Pennsylvania AA.
State lawmakers reconvened last week for a fall session, often called a "mop-up" session. But this year the late session figures to take on greater significance because of unfinished business.
Gov. Tom Corbett failed in his three big initiatives earlier this year -- pension overhaul, a $45 billion transportation bill, and privatization of the state-run liquor stores.
Grell's plan, which he will spell out in two bills, calls for addressing 10 years of pension underfunding by borrowing $9 billion to inject into the pension systems in two phases. This is not "new debt," he said, since the commonwealth already owes $45 billion to the two systems.
Grell, from the suburbs around Harrisburg, said issuing bonds at the current low rates and shoring up the pension systems now could reduce unfunded pension liability by $15 billion over 30 years, with the Commonwealth taking responsibility for the debt service.
Furthermore, he added, it would send a strong, positive signal to current pension members and bond rating agencies that Pennsylvania is serious about meeting its long-term pension obligations.
Moody's cited "large and growing pension liabilities" when it downgraded Pennsylvania to Aa2 from Aa1 in July 2012
Pennsylvania's budget secretary, Charles Zogby, warned last spring that the state could face further downgrades if it doesn't act on pensions.
"There's a problem that needs to be addressed," Jay Pagni, Zogby's press secretary, said Monday. "We'll look at his efforts alongside those of the other legislators and build a package that best serves the taxpayers and recognizes the rights of both public school employees and state employees."
Grell also called for enrolling employees beginning service after June 30, 2015, in a cash balance plan, and offering current members an opt-in incentive of a lower employee contribution rate, which is presently 6.25% for State Employees' Retirement System members and 7.5% for Public School Employees' Retirement System members.
According to Grell, local school districts are most vulnerable to escalating pension debt.
"School districts across the state will see their required employer contributions double in just five years," he said.