Election 2014
8:29 am
Fri May 16, 2014

Democrats For Governor Map No Clear Path Out Of Pension Debt

The four Democrats running for Pennsylvania Governor (upper Left to lower right- Tom Wolf, Allyson Schwartz, Katie McGinty, Rob McCord) make one last push for votes ahead of Tuesday's primary.
The four Democrats running for Pennsylvania Governor (upper Left to lower right- Tom Wolf, Allyson Schwartz, Katie McGinty, Rob McCord) make one last push for votes ahead of Tuesday's primary.
Credit Mary Wilson / 90.5 WESA

The four Democratic gubernatorial candidates have talked about their personal stories, their support for greater education funding, and finding ways to generate revenue.

But judging by the warnings from credit rating agencies, the largest financial headache facing the commonwealth is what it owes in future pension payouts to state and school retirees. And when it comes to paying off that debt, the Democratic candidates aren't exactly bubbling over with ideas.

Education and the economy rank at the top of the list of issues voters say they care about according to several Pennsylvania polls this year.

The Democratic candidates for governor have taken notice, speaking at length about their plans to spend more money on schools by raising taxes on natural gas drilling. A far less sexy topic for these candidates is shoring up the state's public pension systems, though it's a problem that actuaries say should be front and center.

For candidates, solving education budget shortfalls is a roughly $1 billion problem in a $28 billion budget.

The future obligation hanging out there on state and school worker pensions is underfunded by about $47 billion - and that's a growing figure.

The state's legally-required, scheduled payments into those funds are also steadily ticking upward every year for the next couple decades. Republican incumbent Governor Tom Corbett has called rising pension costs a Pac Man, threatening to eat up the rest of the budget.

The three big bond credit rating agencies agree. All have played the part of Cassandra over the past couple of years, warning state policy-makers to deal with its tall pension debt or risk a credit downgrade.

So what do the Democrats running for governor say about this?

Many of the positions of the Democratic candidates are contingent. They all want to spend more on education, but they'll need to raise revenues and fill deficits. They all want to raise taxes on Marcellus Shale natural gas drilling, but they'll need approval from a Legislature expected to remain dominated by Republicans who aren't necessarily supportive of such a plan.

Similarly, when it comes to unloading the pension millstone, the candidates' plans are hypothetical -- and incomplete.

Rob McCord, the state treasurer and one of the four Democratic candidates for governor, says the state should borrow money to pay down some of its unfunded liability. It's a plan that's been offered by Republican and Democratic state lawmakers - the thinking is that interest rates on borrowed money will be lower than the interest accruing now on existing pension debt.

"Use debt to drive down the cost of debt," said McCord at a debate in April.

Tom Wolf, a York County businessman and the front-runner in this race for the past few months, also supports borrowing.

"There's some really interesting, innovative ideas going around right now in the House and the Senate, both Republican and Democratic sides, right, including things like a pension obligation bond," Wolf said at another recent debate. "We'd have to suspend parts of Act 120 to do that."

He's referring to the 2010 law in Pennsylvania that outlawed pension obligation bonds -- borrowing to pay down pension debt. That part of the law was a reaction to what happened when Pennsylvania cities tried such borrowing maneuvers and got burned when interest rates shot up. Many think the move is too risky.

Wolf has left the door open for other solutions to paying down pension debt, but he hasn't gone into detail.

"We've got to make sure that we come up with some innovative way to do that that's not going to sink the taxpayer," he said at a recent debate.

Congresswoman Allyson Schwartz' plan for grappling with the pension debt is also to-be-determined.

"We have to sit down, seriously, to talk about that unfunded liability, because there still will be some," Schwartz said at a debate last April.

Some wonder whether Wolf and Schwartz aren't providing more detailed answers because there's no magic to paying down debt. The state's going to need money, and that may mean either one, if elected, would be willing to raise taxes to pay down the debt.

Katie McGinty, polling last among the four candidates, suggests policymakers can pull the money out of a hat, if the Legislature is willing to agree to the hat. State analysts have estimated that expanding Medicaid would generate more than 430 million dollars in budget savings and tax revenues.

"How about we expand Medicaid tomorrow? That's 500 million dollars saving we could put toward getting real on pensions," offered McGinty, a former state environmental protection secretary.

What she's not mentioning is that lawmakers would have to approve Medicaid expansion. The Republican-controlled Senate would probably be an ally - it forced the issue last year. But the more conservative Republican-controlled House has not been on board with Medicaid expansion.

And so, the Democratic gubernatorial candidates' plans for $47 billion in future pension obligations can be sorted into two major categories: Some want to borrow. Some want to figure it out later.

Governor Corbett, who will face the winner of the Democratic primary in November, has proposed to defer payments on the state's pension debt. Democratic candidates vying for Corbett's job widely criticize his plan as "kicking the can down the road."

Standard and Poor's, a credit rating agency, said the move would spur a downgrade to Pennsylvania's bond rating, making it more expensive for the state to borrow money.