Lawmakers Can Save Taxpayers $2 Billion to $4 Billion Over 10 Years with Modest Changes to PERA and Hickenlooper Plans
CSPR Chairman Earl Wright: “A plan that eliminates the unfunded liability by forcing school districts, state agencies and local governments to pay even more would be no real victory at all.”
DENVER, CO – A small number of targeted changes to existing pension reform plans could save billions of dollars for school districts, local governments and other public institutions over the next decade in Colorado, according to a new study released by the REMI Partnership.
The savings – measured against proposals from the Colorado Public Employee Retirees’ Association (PERA) and the office of Gov. John Hickenlooper – could free up $2 billion to $4 billion over 10 years for transportation, education, public safety and other worthy budget demands.
“The PERA Board and the Hickenlooper Administration deserve credit for producing serious and thoughtful proposals for eliminating the state pension system’s $32 billion unfunded liability,” said Chris Brown, Director of Policy and Research for the partnership and the lead author of the study. “Additional changes to the benefit structure will not only eliminate PERA’s $32 billion unfunded liability, they would also lessen the burden on taxpayers and state and local government.”
“Annual pension costs for school districts, cities, counties and other public institutions have doubled over the past decade to roughly $1.6 billion per year,” Brown said. “There are ways to ease the heavy burden of these annual pension costs and eliminate the long-term $32 billion unfunded liability at the same time. And it can be done with a few adjustments to the plans already put forward by the PERA Board and Hickenlooper Administration, without undermining retirement security for our public workforce,” Brown concluded.
“A plan that eliminates the unfunded liability by forcing school districts, state agencies and local governments to pay even more would be no real victory at all,” said Earl Wright, Chairman of the Common Sense Policy Roundtable (CSPR) Board of Directors. “Annual pension costs are crushing state, local and school district budgets and crowding out badly needed investments in roads, schools and other essential public services.”
“The research also shows average retirement benefits are growing faster than average paychecks for public employees who are still in the workforce, as rising pension costs reduce the funds available for raises,” Wright said.
“This study does not support or oppose any one reform plan, but instead puts the concerns of Colorado taxpayers front and center. The $32 billion unfunded liability must be eliminated, of course, and we urge all stakeholders to find a solution this year. But whatever solution is found, the rising annual cost of PERA contributions to school boards, local governments, the state budget and ultimately taxpayers must be a key consideration throughout the debate. It shouldn’t be swept under the rug or treated as an afterthought,” Wright concluded.
The study, released today, is titled “One Step Further on PERA Reform: How to build on proposals from Colorado PERA and Governor Hickenlooper to eliminate unfunded liabilities and reduce burdens on state, local and school district budgets.” To foster a comprehensive and productive debate over public pension reforms in Colorado, the REMI Partnership closely examined the PERA and Hickenlooper Administration proposals, and then built a series of alternative scenarios for policy makers to consider.
Like the PERA and Hickenlooper plans, the alternative scenarios presented – dubbed “Hickenlooper Plus” – would raise the retirement age for new public employees, increase the number of years used in the Highest Average Salary calculation of base retirement benefits, and temporarily suspend the automatic Annual Increase in benefit levels.
But unlike the PERA and Hickenlooper plans, which would increase or maintain today’s high taxpayer contribution rates, the Hickenlooper Plus scenarios would make a modest reduction in order to provide some budget relief to school districts, local governments and state agencies. On the benefits side, to further manage costs, the Hickenlooper Plus scenarios would also reset the Annual Increase at lower levels than the 1.5 percent and 1.25 percent proposed by PERA and the Hickenlooper Administration respectively.
On the issue of the assumed rate of return, the Hickenlooper Plus scenarios examine a range of options between 6.5 percent and 7 percent, compared to PERA’s current 7.25 percent. In developing the Hickenlooper Plus scenarios, the REMI Partnership was granted permission to view PERA’s forecasting tools, and therefore we believe each scenario has a similar amortization timetable as the PERA and Hickenlooper reform proposals, i.e. 30 years.
“For more than a decade, state lawmakers have approved major increases in taxpayer-funded PERA contributions to pay off the pension system’s unfunded liability, and yet the unfunded liability has continued to grow,” said Simon Lomax, an adviser to CSPR and a co-author of the “One Step Further on PERA Reform” study.
“We don’t have to look at the unfunded liability in isolation. We can take a whole-of-government approach to pension reform that recognizes all the other services state, local and school district officials are expected to provide within their limited budgets. Common sense demands that we fully examine the alternatives before throwing more money at the problem,” Lomax concluded.
About the REMI Partnership: Common Sense Policy Roundtable, Colorado Concern, Colorado Association of REALTORS®, Colorado Bankers Association, and Denver South Economic Development Partnership have partnered to develop independent, fact-based analysis that quantifies the broader economic impacts associated with policy changes. The partnership has provided Colorado lawmakers, policy makers, business leaders, and citizens with greater insight into the economic impact of public policy decisions that face the state and surrounding regions.