Pennsylvania Gov. Tom Wolf said he has a "germ of an idea" for pension overhaul package that would benefit the state's municipalities.

LANCASTER, Pa. – Gov. Tom Wolf said he and legislative leaders are working on a pension overhaul package that would benefit Pennsylvania's municipalities, many of which are struggling with large unfunded liability levels.

He didn't say how he would pay for his "germ of an idea."

"I have some ideas that I'm not going to share all of with you, but it is a major problem and think about what would happen if we could fix this," Wolf said Wednesday night at the 117th annual Pennsylvania Municipal League summit at the Lancaster Marriott at Penn Square.

According to Wolf, state Sen. John Blake, D-Archibald, and outgoing Rep. Kevin Schreiber, D-York, are working with him on a bill that they could produce within six months.

Any pension overhaul discussion is improbable during the truncated fall legislative session in Harrisburg.

The package should meet five objectives, Wolf told about 200 municipal leaders from across the commonwealth: help local governments fund liabilities; not raise taxes; treat employees fairly; not have to rework the legislation; and appeal to a wide variety of municipalities without state mandates.

"You're shaking your heads and saying there's no way in hell we can do this," said Wolf. "But actually I think we can."

That's easier said than done in a state noted for its political bickering. Wolf, a Democrat, has been at odds with a Republican-controlled legislature since taking office in 2015.

Pennsylvania's fiscal 2016 budget was 16 months late and materialized only after Wolf let it become law without his signature. In July, the governor signed a $31.5 billion fiscal 2017 spending plan after lawmakers filled a $1.3 billion gap through a patchwork of tax hikes and revenue assumptions.

Pennsylvania's budget imbalance and a statewide unfunded pension liability estimated at roughly $70 billion -- thanks to chronic underfunding -- have triggered five bond-rating downgrades since 2014..

Moody's Investors Service rates Pennsylvania's general obligation bonds Aa3 with a negative outlook. S&P Global assigns an AA-minus rating and a negative outlook, while Fitch Ratings has Pennsylvania at AA-minus and stable.

An attempt to tweak the two state employee pension funds, the State Employees' Retirement System and the Public Schools' Employee Retirement System, passed the House last year but died in the Senate. Lawmakers expect to take the matter up again in 2017.

Pittsburgh Mayor Bill Peduto implored other municipal leaders to push hard for local pension change. "As the state takes on pension reform, it will be hot, and when it's hot, we have to strike," he said.

Wolf reiterated his opposition to converting employees to 401(k)-style plans on Wednesday night, calling them "scorched-earth, slash-and-burn" approaches. He urged local officials to work with Mark Smith, director of local government affairs and part of his cabinet.

Pension strife has been a major talking point throughout the conference, which resumes Thursday. The league, through its member municipalities and outreach programs, represents about 3.6 billion people statewide.

Earlier in the day, state Auditor General Eugene DePasquale cited the struggles of many cities, notably 76,000-population Scranton.

"The concerns with pensions stems from a whole bunch of the other issues, which is if they can't tackle their pension issues, they can't do some of the other things they want to do, like infrastructure improvements, hire more cops or even keep tax rates lower," he said.

Peduto called for a measured approach.

"I think what we need to work off of is data," he said in an interview. "For too long we've dealt with this issue on emotion and on politics, and we can show over a 10-year period, a 20-year period and a 30-year period where each of our portfolios will be without the reforms that are needed in Harrisburg, without additional payments into MMOs [minimum municipal obligations].

"It needs to happen on both ends, the local end and the Harrisburg end," Peduto said. "The goal for next year is to be able to present to the leadership of both caucuses of the House and Senate where the different bills will place a city like Pittsburgh, will place a city like Harrisburg or Scranton … and what reforms are necessary to make sure our pension funds will be fully funded."

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