Governor Ed Rendell is proposing graduated tax increases in this year’s budget that would take effect after he has left office.

The tax increases are allegedly necessary to compensate for the increase in ‘employer contributions’ to the Pennsylvania Public School Employees’ Retirement System (PSERS) in 2012. The cost to taxpayers will total over $8 billion by 2040.

In his budget, Mr. Rendell attributes the sharp increase in ‘employer contributions’ for PSERS and SERS (State Employee Retirement System) to “retirement benefit enhancements approved by the General Assembly before Governor Rendell took office, actuarial adjustments to both systems enacted in 2002 and 2003 that postponed large short-term increases in employer contributions, and significantly lower-than-anticipated stock market returns in 2001-02 and during the most recent market downturn in 2008-09.”

In this case, ‘employer contributions’ mean taxpayer contributions.

Currently, taxpayers contribute 4.78 percent to PSERS, with 4 percent going to the pension, and the rest contributed by the employees and the Commonwealth itself. In the next fiscal year plan, taxpayers will contribute 8.22 percent to PSERS, with 7.58 percent of the contribution going to the pension plan.

Gary Tuma, press secretary for the governor’s office, said “There’s a significant increase in the obligation that will occur in 2012 that has to do with a number of factors. Absent a dramatic increase in the investment markets and the return that pension markets are going to realize, the state has a legal obligation and the school districts have a legal obligation to fund the pensions. Now we have a plan… it’s still going to require more money.” That proposed plan is being called the ‘Fresh Start Plan’.

“This gets complicated… but rather than require a huge influx of cash when the problem hits in 2012 we would gradually increase the employer contributions by much smaller amounts for the next 20 to 30 years so it would not be a huge shock to the taxpayers in 2012. Kind of the way you would refinance a mortgage and just stretch it out over time,” said Mr. Tuma.

There are alternatives to slowly increasing the rate Pennsylvanian’s pay out every year in taxes to support PSERS and SERS, but the financial obligation to employees would remain unchanged, and employees are not obligated to pay more into the system than they agreed to at the time their employment began.

“[Mr. Rendell] has also made another proposal and that is to alter several taxes: alter the state sales tax to broaden the base, which would bring in over a billion dollars; to revamp some business taxes; and to begin taxing cigars and smokeless tobacco; and to impose a severance tax on natural gas,” said Mr. Tuma, “and he proposed to take all the revenue from those new taxes and set it aside and use that to cushion the need for a significant increase to the pension systems. And also to cushion us against the loss of the federal stimulus money which is another problem which hits in 2011, so we would use the money from those for revenue sources primarily to cushion against the loss of stimulus funds, so some of it may be available,” but he said the state would typically collect the taxpayers’ contributions in the form of taxes or fees.

Evelyn Tatkovski, press secretary for PSERS, said “The pension fund is viewed more as a resource. We’ll provide the information, if there’s going to be any changes to the pension system, [but] we don’t have an opinion. What we’ll do is they can ask, ‘What does this do? What’s the changes in the numbers?’; we’ll give them all that information. It would be the legislators that would make that decision.”

She also said “There’s been a lot of meetings and discussions, there were some public hearings that were held, our executive director has been giving education sessions to superintendents and school business managers so they understand what the issue is, and we created a resource page. The one thing that our executive director has been saying is there’s no one solution that’s going to fix the funding for the system, it’s going to be a mix of solutions.”

Darwyyn Deyo can be contacted by email at darwyyn@paindependent.com