Feds, pensions add to fiscal woes
HARRISBURG - Two dark clouds are hanging over the preparations behind the scenes to get the next state budget ready.
The spectacle of a national fiscal cliff after Jan. 1 and escalating state public pension costs are the factors making budget planning a big headache this year. Monthly collections of state tax revenue are above estimates so far providing some positive news to offset these other worries.
Gov. Tom Corbett will present his third budget address in early February. State Budget Secretary Charles Zogby will offer an important preview later this month of the fiscal picture in Pennsylvania and the decision-making underlying the preparations for the governor's proposed budget for fiscal 2013-14.
The fiscal cliff, or sequestration, offers the immediate threat. This is the double whammy of steep federal spending cuts and federal tax increases for all Americans to implement a deficit-cutting agreement reached in 2011.
President Obama and Congress are negotiating now to reach an alternate plan that would prevent sequestration from going into effect.
Pennsylvania could lose hundreds of millions of dollars in federal aid if they fail, said Mr. Corbett in a recent speech before the Pennsylvania Press Club.
"The fiscal cliff is frightening," he added. "I fear for another recession."
Sequestration would bring federal spending cuts to human service and education programs providing Head Start, breast and cervical cancer screening, low-income home heating assistance, substance abuse prevention and Title I education grants to schools, according to the Center on Budget and Policy Priorities.
The answer to the fiscal cliff problem lies in Washington, so Pennsylvania is at the mercy of decisions made elsewhere. But it's a different story for dealing with a spike in state contributions to pension systems for state employees and public school employees due in part to baby boomers retiring, investment losses during the recession and the underfunding of pension obligations in earlier years.
The state contribution to the Public School Employees' Retirement System will be $1.2 billion in fiscal 2013-14, up $374 million or 44 percent from the $856 million contribution this year.
The state contribution to the State Employees Retirement System will be $971 million in fiscal 2013-14, a $294 million or 43 percent increase from the $677 million contribution this year.
A report released this week by the state Budget Office estimates pension costs will absorb 62 percent of an anticipated revenue growth of $819 million in the next fiscal year as the economy improves.
That translates to more than $511 million that could have been spent on programs and services, the report said.
The report offers several suggestions for reform, including increasing contributions from employees to their pension plans, increasing the retirement age by two or three years and changing how the pension formula is calculated, particularly the factor by which years of service and salary are multiplied.
ROBERT SWIFT is Harrisburg bureau chief for Times-Shamrock Communications newspapers, of which The Daily/Sunday Review is a part. Email: firstname.lastname@example.org.