New Report Addresses Pensions, Taxation, and Financial Transparency
PHILADELPHIA – In advance of Gov. Tom Wolf’s budget address, members of the Pennsylvania Institute of Certified Public Accountants (PICPA) have put together a report that offers high-level policy options for Pennsylvania’s most pressing fiscal and economic challenges. The report, put together by the association’s Fiscal Responsibility Task Force, addresses the potential disaster of state and municipal pension obligations, outlines suggested best practices for current and future taxation policies, and urges for more transparency in government financial reporting. The task force released the report at a press conference this morning in the rotunda of the state Capitol in Harrisburg, Pa.
“Our report addresses pension funding, and provides suggestions on transparency and taxation policy that will help reestablish fiscal stability to Pennsylvania,” says Susan E. S. Howe, CPA, chair of the Fiscal Responsibility Task Force. “Gov. Wolf and the Pennsylvania General Assembly have the challenge of restoring financial health to the state, especially with regard to the worsening crisis of underfunded state and municipal pensions, an issue that must be resolved before an avoidable disaster results. The task force’s report offers policy options to help lawmakers create financially sound decisions for both the short- and long-term.”
The first section in the report reviews two separate and distinct pension crises: state pensions and municipal pensions. These are the most pressing issues discussed in the report because they are the biggest challenges to Pennsylvania’s long-term economic stability. The underfunded pension emergency has been growing, and will continue to deepen if left unresolved. By 2021 state pension obligations could be underfunded by $65 billion, a fiscally unsustainable trend. Municipal pensions are faring no better, with local governments facing an underfunded liability for pensions of nearly 54,000 members—a staggering figure illustrating the cold truth that too little is being done to meet pension obligations for retirees. Failure to adequately fund pension obligations could result in hardships for current and future retirees, or could result in state and municipal bankruptcies.
Policy suggestions in the report include establishing a defined contribution pension system for all new public school teachers, state employees, and lawmakers, while ensuring that no change in benefit level occurs to all existing retirees. The task force also calls for requiring annual plan funding contributions to prevent the deferral of funding, among other options. For the municipal pension crisis, policy options include establishing pension plan portability for new hires, decreasing the vesting period, and increasing the retirement age and length of service.
Another area the task force analyzed was good taxation principles. While creating a climate that attracts and retains business is the goal of any state, and is often at the core of debates on whether or not tax rates should be raised or lowered, the question of whether or not a tax change is “good tax policy” is often overlooked. The task force recommends that any changes to tax policy meet the 10 Guiding Principles of Good Tax Policy, developed by the American Institute of Certified Public Accountant’s Fundamental Tax Reform Task Force. Policy changes that meet these principles, specifically those of certainty, convenience of payment, economy of collection, and economic growth and efficiency, will have the broadest impact on the state and its taxpayers. Recommendations for meeting these four highlighted principles include shifting remittance and collection of local earned personal income taxes to the state level and considering ways the corporate net income tax could be altered to make Pennsylvania’s tax portfolio more competitive with other states and, by consequence, more attractive to new businesses.
The task force also calls for transparency in governmental fiscal matters, specifically detailing the costs and benefits of tax breaks and offering a timeline of obligations and future financial burdens of all current fiscal decisions. These are just a few highlights of the options the task force recommends to solve the pending pension emergency, create good tax policy, and increase transparency in Pennsylvania. Detailed discussions of these issues and more policy suggestions can be found in the full report, available at www.picpa.org/fiscal.
The Fiscal Responsibility Task Force was created in 2010 to provide Pennsylvania policymakers with strategic financial guidance. The goal of the task force’s report is to provide lawmakers with objective, third-party CPA expertise and perspective to help address the state’s fiscal challenges. The report was presented to Gov. Wolf’s office and delivered to members of the General Assembly. This is the PICPA’s third task force report, which is released biennially.
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For more information regarding the Fiscal Responsibility Task Force report or to set up an interview with a CPA, please contact Jacqueline Barnard at (267) 675-6255 or [email protected] or Colleen Kuczynski at [email protected] or (215) 972-6188.
The Pennsylvania Institute of Certified Public Accountants (PICPA) is a premiere statewide association of more than 22,000 members working in public accounting, industry, government, and education. Founded in 1897, the PICPA is the second-oldest and fourth-largest state CPA organization in the United States. To learn more about the PICPA and find resources and story ideas, visit our Press Room at www.picpa.org/pressroom.