May 2, 2018
An Open Letter to Colorado Lawmakers:
As representatives of the Colorado business community, we are writing to urge your support for responsible public pension reforms before the end of this legislative session.
The findings of a recent study by the REMI Partnership show just how unbalanced the PERA system has become. Taxpayer-funded contributions into the PERA system from school districts, state agencies and local governments have doubled over the past decade to $1.6 billion a year. Increasing the taxpayer contribution rate was supposed to reduce PERA’s unfunded liability, but despite robust economic growth, assumptions on the costs changed and the problem has grown worse. At the same time, retired teachers and public employees are getting bigger pay raises on average – in the form of guaranteed annual benefit increases – than those still in the workforce.
We can, and we must, do better.
The situation demands bold and decisive action from our leaders. As state budget officials have acknowledged, taxpayers already contribute enough to PERA and serious reforms are in order. The failure to rein in benefit costs and ever-increasing taxpayer-funded contributions from school districts, state agencies and local governments will send Colorado down the path of states like Illinois, where public pensions consume one quarter of the state budget. Already in Colorado, we are seeing pension costs crowding out other major budget priorities, such as teacher pay raises and investments in transportation and higher education. Standard & Poor’s has even warned that PERA liabilities could trigger a downgrade in Colorado’s credit rating.
For these reasons, State Senate approval of SB-200 earlier this session was a positive step forward. The bill included substantive and cost-effective benefit reforms, such as bringing the retirement age for PERA members in line with Social Security and the private sector; using a more representative salary history to calculate base benefits for retirees; and, capping the automatic annual increases in those benefits at a lower rate. The Senate bill also recognized that after a decade of escalating contributions, taxpayers have done their part and ruled out further increases.
Unfortunately, we have serious concerns about some of the changes to SB-200 made in the State House including a lower retirement age and the elimination of a defined-contribution option for public school teachers – an option that already exists for state public employees.
We are most troubled, however, by changes that ignore the lessons of the past decade and demand even more money from taxpayer-funded contributions from school districts, state agencies and local governments. Specifically, the House version of SB-200 now includes a direct transfer of taxpayer money from the General Fund to PERA starting at a staggering $225 million this year, growing to $255 million next year and likely costing over $2.8 billion over the next 10 years.
The impact to the taxpayer in the House version of SB-200 doesn’t stop with the General Fund payment. Another provision of the bill could increase taxpayer-funded contribution rates from school districts, state agencies and local governments as much as an additional 2 percent from current levels. For most public employers, that would increase the taxpayer share of PERA contributions from 20.15 percent of salary to 22.15 percent of salary – a difference that would cost at least $180 million per year currently and more over time.
Overall, the House changes to SB-200 would put hundreds of millions of dollars of additional pension costs on the backs of taxpayers every year. If these provisions become law, pension costs will further consume taxpayer dollars and crowd out other important budget demands, including teacher salaries and transportation, even more than is currently the case.
We recognize these changes have been proposed in good faith and in pursuit of a worthy and shared goal – eliminating PERA’s massive unfunded liability. But, there is a reason why the Hickenlooper Administration proposed no change in the taxpayer contribution rate: taxpayers have done enough already. As noted in its November budget request, “public employer contributions have grown substantially in recent years and would remain at 20.15 percent of payroll for most covered employees.”
As members of both chambers work to resolve differences over SB-200, we urge them to consider the following reforms to put PERA on a sound financial footing, preserve resources for budget priorities, and do it without increasing the already heavy burden on taxpayers.
- • Remove the direct appropriation to PERA from the general fund. Use that money to pay Colorado’s teachers and fix our roads.
- • Remove the taxpayer from future automatic adjustments in annual contributions that would potentially commit over $180 million in additional employer costs.
- • Allow the unfunded liability to be paid off more quickly if it is determined that annual contributions are above the actuarially determined contribution level.
To remove the need for yet another taxpayer bailout, we urge lawmakers to consider the following options:
- • Option A: Accept the employee increase from the Senate-passed bill. Accept House-passed changes to retirement age and HAS. Lower the automatic benefit increase to reach 30-year amortization target.
- • Option B: Accept retirement age and HAS from Senate-passed bill. Accept employee contribution rates from the House-passed bill. Lower the automatic benefit increase to reach 30-year amortization target.
- • Option C: Accept retirement age and HAS from Senate-passed bill. Increase the employee contribution by an additional 1.5%. Lower the automatic benefit increase to reach 35-year amortization target.
We applaud the PERA Board, Governor John Hickenlooper, and leaders in both parties for insisting that a solution be found this year. Thank you for the work you have done, and will continue to do, on this complex issue. We look forward to the conclusion of your negotiations and a package of PERA reforms we can all support.