Pa. budget chief says pension reforms essential

HARRISBURG, Pa. (AP) -- Pennsylvania Gov. Tom Corbett will "very likely" propose cutting future pension benefits for current school employees and state workers in the state budget plan he will present to lawmakers next week, his chief budget adviser said Monday.

Budget Secretary Charles Zogby, all but confirming a cost-cutting approach that the administration first floated last fall despite questions about its legality, said decisive steps must be taken to rein in taxpayers' fast-growing share of pension costs.

"We've got to pay for our obligations and we need to look at a rebalancing of our pension obligations ... if we're going to meet our needs without inflicting deep cuts elsewhere in the budget," he said at a Pennsylvania Press Club luncheon.

The public's contributions to the state's two major public pension funds is expected to increase from $1.5 billion in the fiscal year that ends in June to nearly $3 billion in 2014-15 and more than $5 billion by 2019-20. The money comes out of a state budget that is less than $27.7 billion this year.

Officials are considering changing the way pensions are calculated. Options include reducing the multiplier, a percentage applied to an employee's years of service and final average salary; reducing or eliminating credit for overtime pay; and reducing future annuities for employees who withdraw their own contributions when they retire, Zogby said.

The plan would not affect retirees' pensions or benefits current employees have already earned, he said. But for active workers covered by the two funds — the Public School Employees' Retirement System and the State Employees' Retirement System — "there may well be proposed changes to your pension benefits going forward."

"This is the year to deal with pension reform," Zogby said. "If we don't manage it this year, we're going to have some very difficult years ahead of us."

Unions contend that any attempt to reduce current employees' right to earn future pension credits would violate the state constitution.

"It's setting the Legislature up for a train wreck, come spring," said Wythe Keever of the Pennsylvania State Education Association, the state's largest teacher union.

Zogby's spokesman countered that "there are legal interpretations on both sides."

"We expect that pension reform will be difficult, but it is achievable," said the Budget Office spokesman, Jay Pagni. "There are many stakeholders and interested parties who will be ... keenly interested in this."

Zogby indirectly linked the proposed pension cuts to education funding, noting that the larger PSERS accounts for the lion's share of pension costs and hinting that spending for schools may suffer if the cuts are not approved.

"When times are tight like this, you really can't do one without the other," he said. "The two are inextricably linked."