Bram Reichbaum is right that Tom Wolf is probably going to have to do…something about pensions.
It’s not worth talking about on the campaign trail, but it is time to start tuning in to this issue because pension payments are about to start ramping up over the next few years, and the Wolf administration is going to need to find another $2 billion a year by the end of his first term.
It’s not catastrophic or anything – the budget is about $29 billion – but it’s a pretty decent chunk of money. We were talking about a lot of pain from a $1.2 billion budget hole this time, and people were worried about that.
Another point to make about these projections is that while these are Corbett administration numbers, and some readers are probably tempted to think the Corbett administration is overestimating the threat level because they want to soak unions, in this case they’re underestimating the threat level to make their own plan look good.
They’re actually presenting a very rosy picture of the situation, assuming a 7.5% annual return. That’s an absurdly high rate to assume, so realistically we could be talking about an additional $3-4 billion responsibility per year relatively soon.
Again, not catastrophic. But it is $3-4 billion worth of spending cuts (preferably tax expenditures) or tax increases that the next Governor is going to have to identify in the 2015-2016 budget.
From a purely partisan perspective, there’s no reason for Tom Wolf to get baited into discussing these issues during the campaign. But it is time for the Blue Team wonks to start kicking around a plan to find that amount of money, because these days I’m hearing a lot of Democratic candidates double and triple-counting the revenue from the natural gas severance tax. We can use it for education, or the budget, or transportation, but the severance tax alone is not going to pay for it all.
I don’t think there is any reason for Democrats to vote for any “pension reform” bill that changes defined-benefit plans for anyone, or cuts benefits for anyone. 401Ks are a failure of a retirement savings policy. We do have the option of not changing our pension plans, and just paying for our pension responsibilities by cutting tax exemptions and expenditures. But we have to think beyond just the severance tax.
For instance, many of our tax expenditures go toward subsidizing fossil fuels. PennFuture says we could be getting about $2.9 billion a year by eliminating these subsidies.
We should also accept the federal Medicaid money, fully close the Delaware loophole with combined-reporting, and explore joining the Regional Greenhouse Gas Initiative (conditional on the energy-importing states accepting some reforms). Over the long term we can try to overturn the Uniformity Clause and introduce a progressive structure to PA’s income tax.
There’s plenty of stuff we can do to raise that money, but the Democratic Party needs to start having a conversation with itself about what the Wolf plan should be.