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WATCHBLOG: The new normal – or – two charts that demonstrate how screwed Pennsylvania is

By   /   March 12, 2013  /   6 Comments

By Eric Boehm | PA Independent

HARRISBURG – By now many people are aware of the seriousness of Pennsylvania’s pension problem: the state is $42 billion in red.

But here’s something else you should know.  No matter what reforms might be enacted this year, $42 billion in debt is the best shape the state’s two pension systems will be in at any point for the next two decades.

Here’s the chart that explains why:

031213WereScrewed1

The data is from the two state pension funds, and the chart itself was produced by the Corbett administration. The gold line is the projections under reforms proposed by Gov. Tom Corbett, the blue line is the current law baseline and the other lines take into account some proposed reforms, but not all of them. More pension charts and data here.

As you can see, the debt in the two pension funds is projected to keep growing until it tops out around $65 billion to $70 billion (depending on whether reforms are made, or not) in 2018 before slowly coming back down to the current level of $42 billion in debt by 2032.

It takes until the 2040s for the debt to be wiped out completely.

And here’s what it will take in terms of state taxpayer contributions (not counting what school districts will have to pay with local tax dollars) to finally tame that debt burden.

031213WereScrewed2

Think the $1.5 billion the state is spending on pensions this year is causing budget problems? The total will crank up to around $6 billion in fiscal year 2034-35.

And the annual contribution will increase every single year for the next two decades, at least. The pension crisis is not a passing trend, folks, this is the new normal of state government budgeting.

The costs could be even higher and it could take even longer to pay off the debt if lawmakers continue to avoid putting in the full annual contribution that the actuaries running the funds say is necessary, or if the funds fail to generate their expected 7.5 percent annual returns.

Given the volatile nature of the stock market and the squirmy nature of politicians, those outcomes seem at least possible, if not likely.

But there is a little bit of a silver lining in all this.

The state might be buried under pension costs for the next several decades, but reforms pitched by Corbett  that would change the benefit structure for current and future employees could save about $11.5 billion over 30 years, according to the administration’s figures.

“We believe with the reforms that we’re improving the long-term health of the systems, which is key,” Budget Secretary Charles Zogby told reporters on Tuesday.

He’s right, but we’re still screwed.

Boehm can be reached at [email protected] and follow @PAIndependent on Twitter for more.

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Eric Boehm is the national regulatory reporter for Watchdog.org. He lives in St. Paul, Minnesota. His work has appeared in Reason Magazine, National Review Online, The Freeman Magazine, The Philadelphia Inquirer, The Washington Examiner and Fox News. He was once featured in a BuzzFeed listicle. Follow him on Twitter @EricBoehm87 and reach him at [email protected]