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Pension Costs to Wreck Pa. State Budget

Projections from the Pennsylvania's Independent Fiscal Office say pension costs will far outpace revenues in coming years.

By Eric Boehm | PA Independent

HARRISBURG – Pennsylvania can expect modest economic growth over the next five years, but it will be surpassed by a surge in state pension costs that begin this year.

An annual economic and budgetary projection from the state’s Independent Fiscal Office, a state equivalent of the Congressional Budget Office, forecasts 0.8 percent revenue growth this year and 3 percent annual growth for the state’s revenues in the next five year.  Pension costs are projected to climb by 46 percent in this year’s budget and 42 percent in next year’s budget.

“The increase in pension contributions is estimated to be about $500 million per year for the next several years,” said Mark Ryan, deputy director of the IFO.

According to the report, those costs will consume 9.6 percent of the state budget by 2017 – up from 4.2 percent of the budget this year.

In comparison to the skyrocketing pension costs, non-pension budgetary expenses are anticipated to climb by only 2.5 percent over the next five years – meaning they would be sustained by the expected 3 percent annual growth in tax revenues if pension costs were not a factor.

Those low growth rates are the “new normal,” said Ryan, and are due to modest growth of the labor market, declining revenues from sales taxes, demographic trends and the lack of any expected booms in housing or the stock market.

By fiscal year 2017-18, pension costs will drive the state towards spending $753 million more than it takes in, according to the IFO report.

The growing pension costs are the result of three events in the last decade: increased pension payouts, a reduction in the state’s contribution rate, and the economic collapse of 2008.

Expected pension costs would grow larger if the state’s two pension funds – the Public School Employees Retirement System, or PSERS, and the State Employees Retirement System, or SERS – do not meet their annual expected earnings of 7.5 percent, a figure some economists believe to be overly rosy.

Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi, R-Chester, said pension reform would stand with transportation funding as the top two priorities in the new legislative session that opens on January 1.

Randy Albright, executive director for state Sen. Vincent Hughes, D-Philadelphia, minority chairman of theSenate Appropriations Committee, said significant pension reform had been accomplished in 2010 and discussions for any additional changes had yet to begin.

Robert Sentner November 25, 2012 at 02:54 PM
"7.5 % overly rosy", thats saying it mildly. Tax payers better hold on to there pocket books. We all know that our elected leaders and teacher union leaders will never tackle this problem, they will just raise taxes to keep there big cushy pensions. My question is when is enough going to be enough ??? Maybe when your tax bill is larger than your mortgage payment ??? unsustainable..... rocky road ahead that most of us are not going to enjoy.
Angela Pittman Robinson November 25, 2012 at 07:03 PM
I think they need to lower salaries & pensions of greedy politicians.
elaine November 26, 2012 at 01:30 AM
Get real. My insurance guy told me these pensions for school teachers would break the bank and this was 15 years ago.
Mike November 27, 2012 at 01:10 AM
We work all our life to get a pension and now they want to take it away....how about yhe lawmakers and politicians... they still have theirs
logansteele November 27, 2012 at 02:00 AM
This is what happens when we let govt. make the decisions for us. Promises have to be broken or the fiscal back of the taxpayer gets broken. Perhaps it is time to rethink just how many people we need to hire with public money so that those who are retiring can expect a pension and those who are working won't cost more than we can afford later. It may also be time to look long and hard at what govt. really needs to be doing.

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