Pennsylvania lawmakers continue to resist the state pension overhaul Gov. Tom Corbett is pushing for.
The House of Representatives in Harrisburg Tuesday morning — hours after the new fiscal year began — briefly debated a Corbett-supported "hybrid" bill that would merge defined-benefit and defined-contribution plans for state and school employees before referring it to the Human Services committee, effectively killing it for this session.
Lawmakers could still introduce other pension legislation.
Corbett late Monday night said he wouldn't immediately sign the $29.1 billion budget for fiscal 2015 because it left "meaningful" pension overhaul on the table. Earlier that day, the House of Representatives and Senate passed the spending plan by 108-95 and 26-24, respectively.
Pennsylvania is staring at a roughly $50 billion unfunded pension liability and possible further wrath from rating agencies.
"There are a lot of moving parts here, so many scenarios," said Rick Dreyfuss, a Hummelstown, Pa., business consultant and an adjunct fellow at the Manhattan Institute for Policy Research.
Standard & Poor's said it could lower Pennsylvania's general obligation rating from AA if pension change remains stalled. Last year, Fitch downgraded the state to AA from AA-plus with a negative outlook after Corbett's initiatives died. Moody's Investors Service assigns an Aa2 rating.
Unfunded pension liability simmers as a hot-button topic in municipal finance.
The Pew Charitable Trusts said in May that the gap between what state and local governments have promised in pension benefits to workers and the funding to meet those obligations is still widening.
According to Pew, data for fiscal 2012 peg state-run retirement systems with a $915 billion shortfall. Factoring in local-government promises, total pension debt exceeded $1 trillion.
In a vote considered largely symbolic from a fiscal perspective, Pennsylvania's Senate on Monday night voted 50-0 to move elected officials who are now under Pennsylvania's defined benefit pension plan into a 401(k)-style pension system. It figures to stall in the House.
"My point is that the savings are not enough to offset the interest costs on unfunded liability," said Dreyfuss. "The fiscal 2014-15 state budget is expected to continue with the collared [deficient and non-compliant] contribution rates, further adding to the existing unfunded liability.
"This action by itself will increase the likelihood of additional credit downgrades by the rating agencies."
Pennsylvania's budget would fill an estimated $1.5 billion shortfall primarily with "one-shot" fund transfers and delayed payments. The Senate sent to the House Tuesday a measure letting Philadelphia assess a $2-per-pack tax on cigarettes, which Corbett said could raise about $80 million for its public schools.
"Once again, the city of Philadelphia is knocking at the door for more funding for the school district," said David Fiorenza, a Villanova School of Business public finance professor and the former chief financial officer of Radnor Township, Pa.
"Philadelphia has always taken the route of least resistance for revenues and not looking at the current delinquent situation for outstanding taxes and fees, which could fund the city and schools for the next few years."
