Governor Corbett Proposes Budget

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HARRISBURGGovernor Tom Corbett today presented his 2013-14 budget to the General Assembly, telling lawmakers that thanks to two years of fiscal restraint, Pennsylvania is now on a solid financial footing for the future.

“I believe Pennsylvania’s best days are ahead,’’ Corbett said. “We are a state blessed with a wealth of natural resources. We are, and will always be, the Keystone State because of our unique location in this country and the world. Most of all, we are home to the hardest-working people in the world. Pennsylvania has unlimited potential.’’

Some highlights:

-No increase to Personal Income Tax or to Sales Tax in the Commonwealth

-Increases overall state spending $679 million, to $28.4 billion

– Calls for Pension Reform

– Calls for 400 layoffs, plus the elimination of 500 other positions

– Phases in higher wholesale fuel taxes over a five year period

-Increases Public Education funding by $90 million, while higher education funding remains the same

“We have worked together to bring spending under control. We have worked together to reduce taxes, putting more money into the pockets of our hard-working taxpayers and small business owners. We have worked together and learned that our potential is, and continues to be, greater than any challenge we face.

“We didn’t create our success by raising taxes. We created it by expanding opportunities,’’ Corbett said.

The Governor’s Pension overhaul has three parts. First, it moves all new employees to a defined contribution plan. State Employees’ Retirement System, or SERS, employees hired after Jan. 1, 2015 and Public School Employees’ Retirement System, or PSERS, employees hired after July 1, 2015 will be enrolled in a 401(a) defined contribution plan, similar to a 401(k) plan. Enrollment in the 401(a) plan will be automatic, and most state employees will be required to contribute at least 6.25 percent of their salary to their plan, while public school employees will need to contribute at least 7.5 percent.

Secondly, it changes the formula for future benefits the plan of current employee. The multiplier in the formula used to determine future pension benefits will be reduced by .5 percent for all employees that are currently locked into a multiplier above the 2 percent level, except for those who previously bought up to the higher multiplier. Current employees can still keep their higher multiplier by paying a higher contribution rate. The plan places a cap on pensionable compensation:  110% of an employee’s average salary for the last 4 years. A cap is also placed on pensionable income, based on the Social Security wage base, which is $113,700 for 2013. The employee’s final salary will be an average of the employee’s last five years of compensation.

Corbett’s plan also corrects a provision in the retirement calculation that provided an annuity that was higher than the amount that could be supported by the remaining funds in employees’ pension accounts. Moving forward, if current employees choose to withdraw their contributions, their pension payments will be based on the amount remaining in their pension account.

Lastly there is a limit to the amount by which the commonwealth’s employer contributions can be increased. Currently, the state must pay an annual required employer contribution rate, which is determined by the amount of unfunded liability and other costs. By law, the state must increase that rate by 4.5 percent each year. This annual rate, currently hovering over 10 percent for both funds and expected to rise to close to 30 percent in the next 8 years, has caused unsustainable growth in employer contributions.

Corbett’s plan reduces current annual employer contribution limits from the mandated 4.5 percent to 2.25 percent in 2013-14. That amount would increase half a percentage per year until it reaches 4.5 percent again, or until it is equal to the annual required contribution rate.