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Looming Pension Crisis
November 25, 2009

Hello. And welcome to “At the Center.”

We all know –all too well—the challenges associated with this year’s state budget process. And we trust that our elected officials are true to their word that it won’t happen again next year.

However, I can’t help but ask…What about the year after that?

Y’see, this year’s budget deadlock was centered on how to fill a 3 billion dollar-plus funding gap on a budget of between 26 to 30 billion dollars. Yet, in two years the state will face a potential 10 billion shortfall as they face the looming “payment due” deficit on the state employees’ pension plans. A one-line item debt that could potentially eclipse a full third of the state’s annual spending plan.

How we got here is fairly simple to explain. At a time when the markets where doing well, the state pulled back on its pension fund contributions and, to make matters worse, increased the defined benefits of the pension plan. Simply put, less money in; more money out. And in two years, payment is due.

The Chamber has been following this issue and at our November Board meeting took action to encourage attention to this problem now –not in two years when it will have to be treated as a flat-out crisis.

Our position statement is quite straightforward in recommending immediate action on the following:

First…effective immediately, all new hires should be placed into a defined contributions system. The days of defined benefits is over for the vast majority of the private sector and there is no reason the public sector should expect any different;

Second…establish a minimum contribution rate to protect future assets. Scaling back contributions to as little as zero is simply irresponsible in the long-term;

Third…allow school districts and related entities –which will be hit hard by this shortfall—the opportunity to set aside reserves to prepare for the pending rate spike. Not allowing a district to responsibly prepare for their future is simply not good fiscal planning; and,

Fourth…do not allow unfunded pension liabilities to be shifted down to the local level. Local governments and school districts already experience enough state-mandated challenges and they certainly don’t need and certainly can’t afford one more.

To be clear, this is a problem that is not the “fault” of teachers, administrators or state employees. It is a problem that has been legislatively mismanaged and, as such, requires immediate attention to correct. We encourage Harrisburg to take action now as our state simply can’t afford another crisis management situation.

Please join us to learn more about this and help us with our advocacy efforts to promote change as we feature the pension topic at our December 3 Wake Up to the Issues breakfast meeting featuring representatives from a local school district, a local municipality and our state delegation. Register by visiting our website at www.lancasterchamber.com.

Until next time, stay in touch, stay engaged and stay with us, “At the Center.”
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