PERA reform’s key challenges

Colorado lawmakers are launching another financial rescue of the state’s troubled public pension system this year, the fourth in less than two decades. We support this effort because the massive — multi-billion dollar– unfunded liability at the Public Employees’ Retirement Association (PERA) is unacceptable.

A bill introduced this month requires yet another increase in taxpayer-funded contributions to PERA, after more than a decade of escalating state contribution rates that were supposed to fix the problem — but did not.

For most of the public workforce, taxpayer-funded contribution rates have doubled from roughly 10 percent of payroll to 20 percent since the mid-2000s. In their initial bill, lawmakers led by state Sen. Jack Tate, R-centennial, and House Majority Leader KC Becker, D-boulder, added another 2 percent to the total.

Next year alone, a 2 percent increase would hike pension costs by $174 million on school districts, cities, counties and, of course, ultimately the taxpayers of Colorado, according to an analysis by the REMI Partnership. Over the next 10 years, the cumulative increase is almost $2 billion.

Thankfully, after warnings from Denver Public Schools and other stakeholders, Tate and his colleagues reconsidered the idea of higher taxpayer contribution rates and amended their bill. We are grateful, but let’s be clear, the pressure to “solve” this problem by taking more money out of school districts, cities, counties and the state budget hasn’t gone away.

Throwing more taxpayer money at the problem ignores our own history and lessons from other states. Do we want to go down the same path as Illinois, where pension costs now consume one quarter of the state budget?

Today in Colorado, PERA contributions are draining hundreds of millions of dollars from state and local budgets, crowding out other worthy priorities like road construction, teacher pay and public safety. Higher taxpayer contribution rates were supposed to shrink PERA’S unfunded liability to zero. Instead, it has ballooned and now likely exceeds $32 billion — an amount that is larger than the state’s total annual budget.

Here’s the good news: There are many other ideas within the Tatebecker bill that can solve PERA’S financial problems without ignoring the needs of taxpayers. They include raising the retirement age for new and younger employees and using the seven highest salaries to calculate benefits instead of the highest three. But in particular, a provision that could lower the automatic annual increase in base benefits to 0.5 percent per year shows real promise.

According to the REMI Partnership, a 0.5 percent annual increase would slow the growth in benefits enough to eliminate PERA’S $32 billion unfunded liability and allow a 2.5 percent reduction in taxpayer contribution rates.

Compared to the good start made in Gov. Hickenlooper’s plan — which would maintain today’s taxpayer contribution rates — this would save $2 billion over 10 years that schools, local governments and state agencies could put towards other pressing needs.

In the REMI Partnership’s report, this scenario was dubbed “Hickenlooper Plus,” because it only took a few adjustments to the governor’s serious and thoughtful plan to provide greater relief to taxpayers.

As the PERA bill moves forward, lawmakers can do the same thing. With some adjustments we can build a better solution to PERA’S problems while treating taxpayers with the respect they deserve.

John Ikard is chairman of the board of Colorado Concern. Mike Kopp is Colorado Concern’s president and CEO.