Bipartisanship is essential for successful PERA reform
The American public has become all too familiar with the story of once-dominant American institutions being brought to their economic knees under the weight of a pension fund gone bad. The story is virtually the same in all instances — generous retirement systems facing financial ruin thanks to a retiree base made up of beneficiaries who leave the work place earlier and earlier, even as life expectancy grows longer and longer. For years, a growing economy and a booming stock market have masked the unsustainability of these systems. Today, that is no more.
General Motors, once the epitome of American manufacturing might, is now the epitome of something else: a corporate behemoth brought-down by its unrealistically generous retirement payments. So prohibitive were these so-called “legacy” costs that the company infamously spent more on pension and health care costs than it did on the steel used to build its cars. A similarly sordid legacy-cost scenario dogged United Airlines for years.
The private sector isn’t alone in staring-down crushing legacy costs. The state of California, the world’s tenth largest economy, was relegated to sending IOU’s to taxpayers in lieu of income tax refund checks, thanks in part to a pension system that was underfunded by $200 billion. California’s pension system is so out of line with the economic realities of these recessionary times that it actually pays out pensions as high as $200,000 a year to retired state workers —some as young as in their early 50s.
And the state of Colorado pension system — PERA, the Public Employees Retirement Association —is facing a similar actuarial fate if real changes are not made.
PERA, which has over 437,000 paying members and 82,000 current retirees, is staring down an unfunded liability of more than $30 billion. For perspective, PERA’s unfunded liability is greater than the total of all of the income, sales and other Colorado-borne tax revenue state government collects in a single year.
As GM, United Airlines and the state of California have dramatically shown, Colorado taxpayers and retirees will face unthinkable economic consequences unless lawmakers come together to approve common-sense reforms that will restore fiscal integrity and long-term solvency to PERA.
In fact, if no action is taken, PERA could face significant cash-flow issues in the next few years alone, and out-and-out bankruptcy within the next two decades. And ultimately, it’s the taxpayers of Colorado who will be left with the tab.
The PERA board, a 15 member bipartisan panel, has offered a reform proposal. Its plan would, among other things, increase the retirement age. At present, state employees can retire as young as 55. It would also pare back autopilot benefit growth, ending the practice of giving PERA retirees automatic raises of 3.5 percent every year, without regard to inflation, the health of the economy, or the condition of the state treasury. The PERA proposal would lower the increase, never to exceed 2 percent.
Finally, the reform package recommended by PERA’s board would put an end to the sweetheart deals that allow some state workers to collect pension payments far larger than the paychecks they earned for the bulk of their careers. For example, right now someone who serves as a state legislator for 16 years making $30,000 annually, who is subsequently appointed to a Cabinet position (where he or she enjoys a six figure salary for four years), can leave the state on the hook for an annual pension based on three years of the person’s highest salary.
Not surprisingly, these reforms are controversial and far from perfect in anyone’s eyes. Many Democrats would like to see automatic cost-of-living increases always keep pace with inflation, and a number of Republicans would like to see a wholesale transition away from the defined benefit system to a 401(k)-style arrangement.
But this issue is too important to see reform derailed by partisan wrangling. I have been encouraged by the negotiations with my Democratic counterpart, Senate President Brandon Shaffer. He also knows there is a real chance that reform will pass if there isn’t a bona fide effort to build a bipartisan plan.
In other states, pension reform has crashed on the rocks of partisanship, as Republicans and Democrats have teamed up to vote down overdue reforms, even if for very different reasons. If gridlock were to prevail in this way here in Colorado, $30 billion in unfunded commitments would be left to future generations.
But I’m committed to not letting that happen. The stakes are too high and the consequences too lasting for us to allow the perfect to be the enemy of the good. Now it’s time for the members of the Legislature to do their part by refining the PERA proposal and approving legislation to make sure PERA doesn’t become the next GM. And for critical financial reasons, it is important that these changes be made immediately when the Legislature reconvenes this week.
As the Democratic and Republican leaders in the Colorado Senate, Sen. Shaffer and I are ready to do exactly that. And that only makes sense. After all, there are Republicans and Democrats who are part of the PERA retirement system, and both Republican and Democrat policymakers share in the blame of building a retirement system over the years that now teeters on the brink.
We’ll no doubt disagree on a lot of things this year, but I’m committed to working with Sen. Shaffer and getting this one right, in a bipartisan way.