Democrats in Pennsylvania’s Senate say borrowing $9 billion 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 the 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 also is proposing to lower scheduled payments into the pension systems again, but by different rates than the governor has outlined.
State Rep. Glen Grell, R-Cumberland, also has proposed floating a bond to pay down some of the state’s pension debt. But other Republicans and the Corbett administration have said 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 noted 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.
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.”