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HARRISBURG — It’s an iceberg on the horizon. A vicious Pac-Man chomping larger and larger chunks out of the state’s upcoming spending plans. A massive gorilla lurking the hallways of the Pennsylvania Capitol.
The commonwealth’s pension liability for public employees is about to make state budgeting even more of a nightmare, and Republican Gov. Tom Corbett has put pension reform next on his to-do list.
“It cannot wait,” Mr. Corbett told a recent crowd of local officials in Hershey. “If we [wait], this budget battle that we go through is going to be totally driven not by increasing jobs, not by reducing taxes, not by giving money to education or to welfare recipients who may need it. It’s going to be driven by how much we have to contribute to pensions.”
That’s a precarious position for a politician determined not to break his pledge against hiking taxes. At the end of the last fiscal year, Pennsylvania’s pension funds for state employees and for school employees were underfunded by at least $37 billion — a massive financial gap to bridge without new revenues.
That figure represents the difference between the value of pension benefits earned by state employees and teachers, and the amount of assets that the state has to cover those costs.
Even with the revised payment plan approved in 2010, the state’s obligation will increase dramatically in the coming years. The current budget accounts for $1.1 billion in pension payments, a cost that spikes to more than $4 billion annually by 2016.
“Does anybody here see the economy growing fast enough just to cover the pension increase?” Mr. Corbett asked during his Hershey appearance earlier this month. “So we have a problem. We have an iceberg right in front of us.”
So how did the problem rise to a level where the commonwealth owes its pension funds more than what it spends on the annual operating budget?
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