House GOP ‘pension expert’ mostly ignored by leadership

HARRISBURG, Pa. (WHTM) – State Representative John McGinnis could keep quiet no longer.

After keeping his views mostly to himself, he finally gave his take on Pennsylvania’s mounting pension problem at a Capitol news conference Wednesday morning.

“I want to address the single greatest financial crisis in the history of the Commonwealth,” McGinnis began.

He said every man, woman and child in the state currently owes $10,000 toward the retirement of public sector workers and the tab is still running.

McGinnis (R-Blair) is not the first lawmaker, or first Republican, to raise the alarm about unfunded pension liability in Pennsylvania, but he may be the most qualified.

McGinnis has a PhD in finance from Penn State and is a former associate professor of finance at Penn State Altoona. He is also a certified financial planner who said he’s comfortable with calculus and actuarial finance.

He has the degrees and the pedigree, but he doesn’t have a silver bullet to mow down pension debt that he estimates at $120 billion, far greater than the $50 billion others are estimating.

McGinnis’s plan is simple. It is painful. He’d put the state on a 20-year payment plan. He says it has to pay $3 billion more than it’s currently directing toward pensions and continue to make that payment for two decades. He’d do it now, because waiting til tomorrow only makes it more expensive, and more painful.

“The irony is I’m the most fiscal conservative guy in the Capitol telling you you need to throw money at the problem,” McGinnis said with a chuckle.

Where does the state find the $3 billion?

The fiscal conservative McGinnis would cut it from other state-funded programs. But he admits a tax increase might also be necessary to cope with the payment.

But since program cuts and tax increases are unpopular to politicians, McGinnis said he’s mostly being ignored by House Republican leadership. They aren’t engaging with McGinnis even though he’s arguably their most able member on the issue of pensions. He thinks it’s as simple as his painful alternatives of budget cuts and/or higher taxes to deal with the problem responsibly.

“None of that is politically easy so nobody wants to do it,” McGinnis said of being snubbed. “So why would they want to hear from me?”

McGinnis, a 1976 graduate of Notre Dame, has lots of Irish memorabilia adorning his office. He also has a skunk atop a bookshelf. He jokes that it’s a mostly mild-mannered creature able to raise a stink, kind of like him.

He sprays a foul odor toward politicians of the past who simultaneously sweetened benefits for retirees and then purposely decided to underfund them. He said defined benefit plans and politicians are a deadly mix because politicians want to give lots of goodies away but never want to actually pay for them.

He supports moving future hires to a 401(k)-style plan, now popular in the private sector. He’d contribute five percent of an employee’s salary toward their retirement and get taxpayers off the hook. He’s seen the numerous plans legislative leaders are currently pushing to deal with the pension crisis and says none of them are good enough, or big enough, to fix the problem.

The skunk also said this, “Beware: elected officials have, and will, come up with every gimmick possible to avoid paying the bill.”

McGinnis insists that governors and lawmakers have been delusional for years when they suggest that budgets are balanced, as both parties have done for more than a decade. How, he asks, can you say your budget is balanced when you have a huge bill that you’re just ignoring?

Steven Herzenberg also has a PhD, his in economics from MIT. He is with the Keystone Research Center. Herzenberg is as left as McGinnis is right, but both agree the bill must be paid and the state needs to get onto a responsible payment plan. Herzenberg supports, however, defined benefit pension plans for public sector employees.

“We don’t want to throw out the baby with the bathwater,” Herzenberg said.

He says pensions are key to getting and retaining good employees.

“The best research shows that the quality of the existing pensions is compensation for much lower salaries during the career of a public servant,” Herzenberg said.

To McGinnis, the economics of the pension problem is easy. It’s the politics that makes it much more complex. He promises to keep trying.

“It is absolutely the case that the future of Pennsylvania is on the line, but politicians are very short-term oriented creatures,” he said.

Of course, politicians fear the voters who get grumpy when their programs are cut or their taxes are raised.

So who really is to blame for a lack of leadership and action on the really difficult issues?

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