By Keith Greinet and Seth Grove 

It’s been quite a while since the American economy has performed as well as it is now doing. Joblessness has sunk to record lows, causing some analysts to suggest we may be as close to full employment as we’re ever going to get. Core inflation remains under control, wages are rising and the U.S. Treasury just announced record total tax revenues of $470 billion for the first two months of the new fiscal year.

That strong performance is tempered by several considerable concerns involving total debt and future obligations. Rather than continue to increase spending, we should use these good times to take the lead in getting the public’s fiscal affairs in order. If we wait for another downturn, all we’ll be able to offer are painful cuts and unpopular austerity programs no one likes. In Pennsylvania, we’ve proposed House Bill 2081, which provides for a more effective, fiscally responsible management of municipal pension plans and for penalties.

This is a crisis everyone can see coming but many legislators and governors are afraid to address. Public employee pension payments in states like California, New York and Illinois run so large and so generous they continually threaten a massive reordering of spending priorities not to mention default. No one wants to see any state go hat in hand to the feds for pension bailout, especially since it will be impossible to say “No” after the first one is granted. So now, when the money is coming in, is the time for a fix. Our state, Pennsylvania, ranks 29 compared to other states for pension liabilities, with unfunded liabilities at nearly 30 percent of gross state product. In 2019 the per capita unfunded liability was $16,550. It’s easy to project how that number will only go up unless we can agree on real reforms than can draw bipartisan support.

As the Government Accountability Office explained in testimony to the Joint Economic Committee, “The Pension Protection Act of 2006 provided that large private-sector pension plans will be considered at risk of defaulting on their liabilities if they have less than 80 percent funding ratios.” Pennsylvania’s funding ratio is 29.42 percent, and it is ranked at 40 compared to other states in this field. Worse still, between 2013 and 2018 in Pennsylvania, the funding ratio fell by 2.87 percent despite the nation being in a rapid 10-year expansion in equities – and we’re not alone. State pensions across the country are funded at an average of 35 percent of what they should be.

Even the best-funded states like Tennessee, Indiana and Nebraska which rank in the top three, have unfunded liabilities ranging between $8,500 and $9,000. It’s important to address this head-on and now because pensions, like Social Security, involve an implicit promise to all Americans, that if you work hard and save and play by the rules, you can pretty much be sure of enjoying the retirement you earned at some level of comfort. These guarantees mean that old-age poverty, which used to be the norm back in the early part of the last century, is a problem that more and more is being solved.

The new retirement vehicles created in the last 40 years — 91 percent of Americans already have access to a 401K — have helped immeasurably but the existing system still needs reform to make sure those in it get what they deserve. The threat of having to take funds from other vital government services — government services that our state cannot operate without — is real. Pennsylvania isn’t like the federal government. We can’t just print money. We need a new status quo in pension liability that prioritizes working together to find solutions that meet the needs of citizens and, hopefully, sets a bar the other states will be driven to match.

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