More financial problems loom for Colorado’s taxpayers
In the movie “Animal House,” a character played by a young Kevin Bacon attempts to halt a stampeding crowd by raising his arms and nervously shouting “remain calm, all is well.” Colorado State Treasurer Walker Stapleton is just like that, only the opposite.
He is traveling around the state telling anyone who will listen that the economic stability of Colorado is not well and the citizenry and Legislature darn well better get excited about it. Embattled taxpayers are in a fiscal struggle for their future, facing something like a military pincer movement, even though many don’t realize it.
The first prong in the attack is the public-employee pension system that has been moving steadily from problem to disaster over the last couple of years.
University of Colorado economics professor Barry Poulson, co-author of a buoyant report titled “State Pension Funds Fall off a Cliff,” told the Colorado Springs Independent he believes Colorado’s Public Employees Retirement Association is among the shakiest in the nation and predicts it will run out of money during the next decade. In January, he declared assets held by PERA would only fund 58.4 percent of its liabilities owed to present and future pensioners.
The pension fund, which covers nearly 500,000 public employees in Colorado, is trying to operate on assumptions predicting an 8 percent return on investment, which the treasurer and many other investment professionals think is, at best, very, very optimistic.
About 25 percent of the fund’s assets are bonds, which traditionally return only 3 percent to 4 percent on their investment. That means the remainder needs to return 10.5 percent to 11 percent, which would be charmingly naive if the rest of us weren’t probably going to have to backfill the difference between what is owed and what they own.
In that regard, an audit reviewed by the Legislature this year revealed that PERA faces $27.5 billion in unfunded liabilities. The cheery news from the audit, reported by The Denver Post, was an estimate that employer contributions (I read that to be tax dollars) to the benefit plan would need to be raised 61 percent to make the plan solvent within 30 years. The Post also reported that in 2008, PERA paid out $2.8 billion in benefits versus $1.4 billion in contributions.
The other thrust of the pincer movement come from state Medicaid. Presently, K-12 education, combined with Medicaid, consumes about 70 percent of the state’s budget. In 2013, federal health care legislation dubbed “Obamacare” will force the state to expand Medicaid to cover an estimated 130,000 more people. The Heritage Foundation estimates Colorado’s share of the Medicaid expenditure will rise $318 million between 2014 and 2020.
Coincidentally, that is two years before a study cited in the British publication, The Economist, predicts Colorado’s pension fund will run out of money. That study even uses the fanciful return on investment of 8 percent, and assumes state revenues grow by 3 percent a year from 2008.
So, you can see if things stay as they are, Colorado taxpayers are doomed to lose this war to an entitlement-fueled blitzkrieg of debt. What happens at the end probably involves drastic cutbacks in services and personnel that are important to taxpayers, as an effort to leverage tax increases.
But there is hope, a small waifish bit of hope, but hope nonetheless. The Legislature could freeze benefits and require a higher rate of contribution from state workers, not to punish them but to save them and new public employees, who at some point are not going to be contributing anything to their own retirement but simply paying those already receiving benefits.
At the national level, Obamacare obviously must be repealed or its implementation prevented.
Treasurer Stapleton is not optimistic about a legislative fix. He compares legislative progress to trying to break out of prison with a razor blade.
However, there is always the opportunity for a citizen initiative at the polls, some chance the public will awaken to the threats and demand action from state and federal lawmakers.
All is not well, as Mr. Bacon’s character found out. But in our case we are forewarned and there is much truth in the motto of Faber College; “Knowledge Is Good.”
Rick Wagner offers more thoughts on politics at his blog, The War on Wrong.