House Kills Pension Bill, Leaving Budget Deal In Tatters

HARRISBURG, Pa. (KDKA/AP) - A proposal to revamp Pennsylvania's two large public-sector pension systems was defeated overwhelmingly Saturday in the state House, collapsing a deal to solve the state's 6-month-old budget impasse.

The House voted 149-52 against a bill that would have forced newly hired teachers and state workers into a hybrid system made up of a traditional pension alongside a 401(k)-style benefit. Every Democrat voted against the bill, along with a majority of Republicans.

House Majority Leader Dave Reed, R-Indiana, who argued strongly for the bill, said the next move will be to advance a stopgap budget. He said the pension changes were needed to address costs that have been increasing for school districts and state government.

"If that's not possible, then new revenue is off the table as well, and we're going to have to plan accordingly," Reed told reporters after the vote. "It just went down pretty resoundingly."

A stopgap may be a tough sell in the Senate. Majority Leader Jake Corman, R-Centre, said the next move should be for the House to send over a full-year budget without any tax increases.

Layoffs in state government could soon occur, Corman said, warning that a deadline is also approaching for the Educational Improvement Tax Credit program that funds private school scholarships.

"This is real - there's consequences to not being able to get things done," Corman said.

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Gov. Tom Wolf, a first-term Democrat, called a news conference to urge negotiators to return to work.

"My understanding of the deal was that the Republicans were going to pass that. It was a surprise for a lot of us that it didn't pass," Wolf said.

After Saturday's vote, Wolf is scrambling to figure out what to do next.

"We don't have a choice. We have got to balance this budget. We've gotta make sure the math actually works," Wolf said.

The majority of lawmakers in the House say Senate Bill 1071 isn't quite right.

"It creates further disparity in the pension system that in my opinion will create another additional constitutional challenge," Rep. Eli Evankovich, R- Allegheny & Westmoreland said.

"One issue we haven't dealt with is the fact that nothing in this bill deals with the fact that both the Rendell Administration and the Corbett Administration did not fund the pensions to the tune of $11 billion compound interest on that amount of money is $20 million," Rep. Bryan Barbin, D- Cambria & Somerset said.

However, other lawmakers say this bill is a step in the right direction.

"Senate Bill 1071 moves us towards reality. It is a system that creates a stable plan for new hires moving forward and it shifts risks, not just for current taxpayers but more importantly Mr. speaker, for future taxpayers," Rep. Jesse Topper, R- Bedford, Franklin & Fulton said.

House Majority Leader Dave Reed says the next move will be to advance a stopgap budget.

Pension changes were needed to address costs that have been increasing for school districts and state government.

"Depending on the district and their financial situation, there will be districts that will not be able to continue to offer services," Linda B. Hippert, ED.D. With the Allegheny Intermediate Unit said.

"A stopgap is not the answer," Wolf said. "We need a full-year budget."

Rep. John McGinnis, R-Blair, argued on the floor that the proposal would have actually increased the state's pension debt and that the Legislature should instead look to completely end the defined-benefit, traditional pension.

"We like to think that this is an honorable institution," McGinnis said. "But by underfunding our pensions, we steal from children and from children not yet born. How is that honorable?"

Others warned the bill was vulnerable to a court challenge, and noted that it did not provide any immediate budget relief to school boards or lower the two pension systems' unfunded liabilities.

The bill would have been a step in the right direction, said Rep. Mike Tobash, R-Schuylkill, by shifting half the investment risk to the new hires and off the backs of taxpayers.

"This bill does not kick the can down the road," Tobash said. "In fact, it forces our pension systems to get a sharper pencil and save money on investment fees."

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Schools and state government will have to keep raising taxes without pension reforms, said Rep. Kate Harper, R-Montgomery.

"I've been here a few years," Harper said. "I have yet to see a perfect bill. I'm still waiting."

The pension changes were part of a framework that Wolf had negotiated with the Republican-controlled General Assembly, along with higher taxes to increase education funding and reforms to the state-controlled system of selling wine and liquor.

Wolf said Friday that he had obtained enough votes to get the taxes through the House, but the pension bill's defeat pre-empted a tax vote.

Pennsylvania has been without a budget since the start of July, leaving schools and government agencies scrambling to pay bills.

The vote represents a win for unions that represent teachers and government workers, as well as for those who fought the tax increase.

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