With the Commonwealth saddled with $40 billion of pension debt, a group of state legislators met in Harrisburg last week for a joint House committee hearing on the outsized tab.
At the center of the conversation was 157th District representative Warren Kampf, who has authored a pair of bills—one directed at the state workers' pension system; the other at the state’s program for teachers—that aim to draw down Pennsylvania’s obligation to its employees.
Kampf, in the midst of a difficult reelection challenge from Democrat Paul Drucker, sat down with Phoenixville Patch in his Paoli office earlier this month to talk about how the debt grew and what he proposes we do about it.
His proposal, he said, is for any future hire at the state or local level to go into a defined contribution plan. State police would be exempt from this switch because, according to the Rep., they don’t receive any Social Security benefits.
“The benefit of that is we stop adding people to a system that prior legislators and government have demonstrated they cannot manage effectively,“ he said.
Kampf explained that in the early aughts a generous new set of benefits were added for state and school district employees. The benefits were made retroactive so they applied to all employees in the system, even those just about to retire. The state, he sighed, proceeded to underfund this new promise to workers.
“State spending went up substantially, but dollars that went into the pension system remained flat or even went down, which is irresponsible.”
The result, he said, is an unfunded pension liability of between $35 and $40 billion; which, even if reduced by a third, would match the state’s annual budget of $27 billion.
What About Current Employees?
Kampf acknowledges that there are hurdles to forcing state and public school employees out of their current pensions and into a plan similar to what’s offered in the private sector.
In addition to what he calls the “significant legal obstacles” such a maneuver would face (He did acknowledge some uncertainty in this area, adding “How ironclad are [pension agreements]? You leave that to someone who is an absolute expert on the subject”), he said there are moral considerations as well.
“These promises have been made and people made plans based on that,” he said.
His hope is that the state will be able to get workers to switch, voluntarily, into the Kampf pension plans. The pitch is this: employees who switch will have a broader range of investment opportunities and, counterintuitively, more security. (The system, the argument goes, as underfunded as it is, might be considered unsustainable by budget savvy workers.)
“The state's higher education system has an option whether you go into a defined benefit or a defined contribution,” Kampf said. “In good times, there are people who chose to go into the defined contribution instead of the defined benefit. In down times, there is less of that, but it still happens.”
So, How Much Will it Save?
It’s unclear. Neither of Kampf’s plans have been scored by independent agencies. He said they will though, eventually.
“I have to leave that to the actuaries,” he said. “There’s an independent office of the state that will do an analysis on mine and other proposals. There are other proposals in the Senate that are similar to this; there’s a hybrid plan in the houseand the governor’s office may come up with its own proposal. There will be plenty of actuarial analysis of this, and I’ll leave it to them to come out with the ultimate resolution.”
Kampf added that he’s certain the plans, if passed, would be both a short- and long-term boon to Commonwealth taxpayers.
Kampf Talks Revenue
Act 13, the law that regulates the drilling of Pennsylvania’s ample natural gas reserves, has drawn criticism from some corners (including the campaign of Kamp’s opponent Paul Drucker) for not sufficiently taxing the energy companies that come to the state to extract. According The New York Times, Pennsylvania’s rate of taxation for natural gas extraction is less than half of what Texas charges. When asked to reconcile his support of a law that left large amounts of revenue on the table with his concerted efforts to address debt, Kampf pointed to the complexities of governance: he might have supported a higher fee on the drillers, he said, but it wasn’t politically possible.
“Down here in the Southeast [of the state] many of us, myself included, could have supported a higher fee or tax, but we’re not the only people in the legislature,” he said, adding that many legislators, and Governor Tom Corbett, were initially opposed to levying any tax against the drillers. (Hence, the labeling of the $500 million annual charge a “fee” rather than a “tax.”)
Kampf added that the $500 million annual impact fee mandated by Act 13 is a significant sum, and has gone on to fund a host of green initiatives that are near and dear to the hearts of many 157th District voters.
“At the end of the day I think it was a very good start,” he said.
The Odds of Passage
Kampf said it’s possible that the legislature could pass a pension reform package as soon as this fall.
“Our local school districts, their line items for pension contributions are doubling and tripling each fiscal year now, and the same thing is happening with the state budget,” Kampf said, underlying the urgency of the problem.
He said it’s this urgency that will, he hopes, bring his Democratic colleagues to the negotiating table to make choices he concedes may be politically unpopular.
“Labor leaders and others, I hope that everyone who sees what’s happening recognizes that we have to make some difficult choices.
"If we don’t make those choices, I don’t event want to think about what the consequences are.”