State Auditor General Eugene DePasquale joined two non-government groups Monday in unveiling a new report that argues corporate tax reform would save more money than frequently discussed public pension changes.
The report contends $3.9 billion is lost annually in state corporate subsidies, tax breaks and tax loopholes, and that money could more than cover any pension costs, eliminating the need for other pension reform proposals.
DePasquale held a joint telephone news conference with Good Jobs First Research Director Philip Mattera and Keystone Research Center Executive Director Stephen Herzenberg.
All three said escalating pension contributions for state entities and school districts are a legitimate concern, but the debate has been too narrow, focusing only at the cost and not at potential revenue.
The report, dubbed “Putting State Pension Costs in Context,” was done by Good Jobs First, which bills itself as a “national policy resource center for grassroots groups and public officials” working to create corporate and government accountability.
The report looked at pension costs in 10 states, including Pennsylvania, and compared pension costs to money the state loses each year in economic development subsidies, tax breaks and tax loopholes for corporations.
$1.4 billion required
According to the report, Pennsylvania’s two main public employee pensions — the State Employee Retirement System (SERS) and the Public School Employee Retirement System (PSERS) — will require about $1.4 billion this year. The bulk of that, $1.18 billion, is needed by PSERS.
During the news conference, Mattera noted the report excludes “pension costs associated with past under funding,” but said even if those numbers are factored in, the total needed, $2.8 billion, is well below the amount lost in corporate subsidies and tax breaks.
The report doesn’t give local or regional data, but goodjobsfirst.com has a “subsidy tracker” that includes county-level data from Pennsylvania’s online “investment tracker.”
The state data are from the year 2000 to the present but does not break down information by year. According to the subsidy tracker, corporate subsidies and tax breaks since 2000 in Luzerne County total $55.8 million.
The local breakdown shows the money was awarded through seven state programs:
• $16.32 million through 50 “Opportunity Grants”;
• $12.04 million through 12 “Pennsylvania Industrial Development Authority” loans;
• $10.62 million through 41 “Job Creation Tax Credits”;
• $7.21 million through nine “Infrastructure Development Program Grants”;
• $6.9 million through 12 “Machinery and Equipment Loans”;
• $2.45 million through 14 “Customized Job Training” programs; and
• $247,378 through one “Film Tax Credit.”
All three men said they were highlighting the report because Gov. Tom Corbett is expected to tackle the pension issue in today’s budget proposal, and they want the debate to broaden.
Corbett proposed pension reform this year that would have put new employees in a defined contributions plan — giving a set amount to a 401(k) plan, say — rather than the current defined benefits plan, which guarantees set payments upon retirement. That proposal went nowhere in the legislature.
“If you believe there is a pension issue, the most glaring reason is because state government and the legislature, along with school boards, didn’t do their fair share of funding over the last 10 or 15 years,” DePasquale, a Democrat, said. “Why should the workers have their pensions cut simply because of irresponsible leadership?”
Contributions are made by employees and by employers — the state and school districts — as a percentage of pay.
Employees have been giving a fairly steady rate of about 7 percent, but the state/school board rate varies based on the health of the fund. At the end of the market boom in 2000, the rate was near zero.
It has since risen rapidly. The school district rate was 16.93 percent this year and is set to rise to 21.4 percent next year.
Herzenberg argued that moving all new employees to a defined-contribution plan means no new employees will contribute to the existing pension fund, making the fund shortage worse.
DePasquale said talk of “putting a collar” on this year’s proposed increase — making it less than 21.4 percent — would provide temporary relief but make the problem worse down the road.
Hee also noted his office already has adjusted and is ready to pay the increase in the pension fund. School districts were advised years ago to start salting away extra money to cover the increase, and generally speaking, local districts have been trying to do that.
DePasquale said his office is preparing to audit the tax break programs to try to determine if the resulting job and economic growth is worth the price.
He said his department is also looking into the possibility of auditing finance managers who run the state pension funds to see if the state is getting its money’s worth out of their fees.
While all three said they welcome any ideas to set the state pension funds on the right track, it has to been discussed in a larger context. And corporate tax breaks are a big part of that context.
“We feel if anything is out of control, it is the extravagant tax break and subsidy demands companies are making,” Mattera said. “In every one of the 10 states studied, current retirement costs were far outweighed by corporate tax breaks and loopholes.”