State House Sound Bites

Capitol reporter Katie Meyer covers Pennsylvania politics and issues at the Pennsylvania state capitol.
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Senate Dems offer $9 billion borrowing plan for pensions relief

Written by Mary Wilson, Former Capitol Bureau Chief | Mar 12, 2014 3:40 PM
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State Senate Democrats say borrowing nine billion dollars is the best way to address the state's rising public pension debt.

It's a shift from a caucus that has previously supported a wait-and-see approach with the 2010 law that reset scheduled payments into the pension systems. Those payments are set to increase by hundreds of millions of dollars over the next several years, eating up precious funding for other government programs, only to decrease again in 20 to 30 years.

Now they Senate Democrats say a $9 billion bond could refinance some of the pension debt. Sen. John Blake (D-Lackawanna) said a bond would bring long-term savings if proceeds go directly into the two public pension systems.

"The interest rate is good. It's a good time to take advantage of this," Blake said.

The caucus is also proposing to lower scheduled payments into the pension systems again, but by different rates than the governor has proposed.

House Republican Glen Grell (Cumberland) has also proposed floating a bond to pay down some of the state's pension debt. But other Republicans and the Corbett administration say it's too risky to count on a rate of return. They were outlawed in Pennsylvania in 2010.

"The value of them is to provide for additional funding through arbitrage - differential in rates between the cost of borrowing and investment," said Sen. Pat Browne (R-Lehigh), who drafted parts of the 2010 law. "And across the country when they've been used, there's been very mixed results."

Blake hearkened back to the time in 2012 when the state floated a nearly $4 billion bond in 2012 to repay unemployment compensation benefits owed to the federal government. He referred to Grell's proposal, and said lawmakers might be growing more amenable to borrowing.

"I think the interest rate environment that's changing out there creates a sense of urgency that this might be a prudent way to go, at least in part, to deal with our system," Blake said.

Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi, suggested such a proposal won't be dismissed out of hand. "It might make some sense to discuss including pension obligation bonds as part of a comprehensive pension reform package," Arneson said. "However, such bonds are not a substitute for real, comprehensive reform."

The governor's office gave no hint of budging.

"They would be doubling down in the hope that the stock market would be OK," said Corbett spokesman Jay Pagni, "and putting taxpayers at more of a financial vulnerability than they already are for state pensions."

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