Corbett: Overhaul pensions — or else

      

Angela Couloumbis, INQUIRER HARRISBURG BUREAU

Posted: Tuesday, February 5, 2013, 11:57 AM

HARRISBURG - Gov. Corbett on Tuesday unveiled a $28.4 billion budget for the next fiscal year that appears to hold fast to his campaign promise of no new taxes, and would send more dollars to public schools as well as health and social welfare services.

But the more generous spending - the governor's plan is about 2.7 percent more than this year's $27.65 billion budget - comes with a big caveat: the legislature must approve Corbett's proposed overhaul of Pennsylvania's public pension spending.The pension question will be controversial, as it would require all new employees to move into a 401-K-style retirement plan and make significant changes to the way future benefits are calculated for current employees."The rebuilding of the Commonwealth's programs and services begins today," Corbett said. But, he warned: "We must take action [on pensions] to provide budgetary relief, to prevent these costs from consuming our ability to fund core programs and services."He added: "Now is not the time to be timid in our approach. Now is not the time to cling to old ideas and the status quo . . . Now is the time to be bold. Every one of us had come here to make things better for all Pennsylvanians."As expected, the governor's budget also makes a pitch for several other big-ticket items, including privatizing Pennsylvania's wine and liquor stores and raising several billion dollars for roads, bridges and mass transit.Specifically, Corbett wants to sell off the state stores - and allow supermarkets, convenience stores and big-box stores to finally sell beer and wine - in order to raise $1 billion. That money would then be given to public schools, over four years, to spend on school safety, early learning programs and other designated areas. The first installment of roughly $200 million would be available for the 2014-15 school year.On transportation, the governor's plan would uncap the so-called oil franchise tax, a fee levied on the wholesale price of gas (which is now capped at $1.25 per gallon). The plan would be phased in over five years, and, coupled with cuts in some administrative costs, would produce a half billion in funding in the next fiscal year, the administration estimates.

All are major proposals that will require nimble negotiating with the legislature. And on his transportation plan, Corbett will have to beat back criticism from some corners that uncapping the oil franchise tax would result in an increase for consumers of gas at the pump - and buck the governor's no-tax pledge.

But the big fight with the legislature will likely center around pension changes. Corbett's plan would reduce future pension benefits for current employees by changing the way those benefits are calculated. Even if the legislature approves his proposal - a heavy lift to begin with, as legislators would also be reducing their own pensions - it will likely face a legal challenge and could be tied up in the courts for months or even years.That leaves this question: how will Corbett make up for the $175 million he estimates in savings from pension reforms in the next fiscal year if the legislature doesn't approve his pension proposal, or if it is held up by legal challenges.The governor and other administration officials have signaled that if the legislature does not act, they will likely have to look for cuts in education, setting the stage for a showdown come the summer. The budget must be approved by July 1, the start of the new fiscal year.As it stands now, Corbett's proposal calls for a $90 million increase in basic education funding, and would increase spending on early childhood education, including a 5 percent increase for pre-kindergarten programs. Higher education would be funded at this year's levels, an improvement over the steep cuts over the last two years.Corbett's budget proposal would also boost funding by $40 million for people with intellectual and physical disabilities to live independently, and would expand community health services to help people in rural areas.His spending plan also calls for a series of continuing business tax cuts. Corbett's budget would end the capital stock and franchise tax, increase the amount of net operating losses businesses could carry forward from $3 million to $5 million; and begin in 2015 a long-term reduction of the corporate net income tax from the current 9.99 percent to 6.99 percent.