March 04, 2013 02:16 PM UTC

Pennsylvania's Governor Refuses to "Welch" on State Debt: Retirees "Earned their Pension Benefit."

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• by: PolDancer

In Pennsylvania, we see respect for state contracts.  In Colorado, we see a duplicitous, deceptive, immoral, and illegal attempt to push state debt onto elderly pensioners.  This attempt has diminished the State of Colorado.

I’m sure that you have all heard by now, the State of Colorado is trying to break its contracts . . . escape its legal public pension obligations.  In 2010, the Colorado Legislature passed a bill that proposes to take back accrued, earned, contracted, deferred compensation from public pensioners in the state.  The bill, SB10-001, proposes to shift the debt of Colorado state and local governments onto the backs of Colorado retirees.  In 2010, a group of union and corporate lobbyists colluded to persuade Colorado legislators to make the attempt to escape contractual public pension obligations.  It’s one thing to change a discretionary benefit.  Breaking contractual obligations is another thing entirely.

I also find it strange that the PRIMARY option considered by the Colorado General Assembly in 2010 to shore up the Colorado PERA pension was to take money from pensioners.  Colorado PERA officials have admitted that this breach of Colorado PERA pension contracts accounts for 90 percent of the cost savings in their bill, SB10-001.

It’s odd that the Colorado General Assembly would look first to breaking retiree pension contracts, particularly when one learns that Colorado state and local governments dedicate a smaller percentage of their budgets to support public pension obligations than is the case in most states.  Even though Colorado has put forth the minimum effort to support its public pensions historically, representatives of the State of Colorado claim that they want to be the first in the nation to break those public pension contracts.  This is not good faith and fair dealing on the part of the State of Colorado.

Jennifer Paquette, Colorado PERA’s Chief Investment Officer, wrote in the Denver Post on May 22, 2011:

“In fact, employer contributions to pensions account for just 2.16 percent of all Colorado state and local government spending, according to 2008 U.S. Census Bureau data.”

Link:

http://www.denverpost.com/headlines/ci_18100068

In 2010, a majority of the Colorado Legislature and Governor Ritter decided to try and hoodwink Colorado courts into believing that the 69 percent Colorado PERA actuarial funded ratio that year was some sort of “crisis” that necessitated the breach of contracts by Colorado governments.  Why would they attempt this deception?  Even Colorado’s former Governor Richard Lamm has observed that a Colorado PERA unfunded liability as low as 54.7 percent is not a “crisis.”

From the Silver and Gold Record’s coverage of Colorado Treasurer Mike Coffman’s 2005 PERA commission hearings:

“One attendee asked if there was any similar controversy in the 1970s, when PERA's unfunded liability went as low as 54.7 percent.  (Colorado PERA Executive Director) Williams said former Gov. Richard Lamm, who co-chaired the PERA commission, made that same observation last year when he recalled that there was no outcry when he was governor and the unfunded liability was below its current level.  Williams compared the unfunded liability to having a mortgage, and asked how many people have enough money on hand at any one time to pay off all or even half of their mortgages.”

Link:

https://www.cu.edu/sg/messages/5245.html

Arguing that the Colorado PERA pension system is in a “crisis” because Colorado PERA cannot pay off 100 percent of contracted benefits immediately is like saying every homeowner in the United States is broke because they can't pay off the entire amount of their 30 year mortgage right now.  It is an absurd argument.

Pennsylvania’s Governor considers such attempts to break state contracts immoral, and a waste of millions of taxpayer dollars on fruitless lawsuits.  He proposes that the State of Pennsylvania honor its current public pension debts to retirees, (as well as accrued pension benefits of current employees.)  The Governor proposes that the rate at which current employees accrue public pension benefits going forward be reduced.  This is essentially a proposal made by Professor Amy Monahan of the University of Minnesota School of Law.  While the Pennsylvania Governor’s proposal is controversial, it is also admirable in that it does not attempt to deny the state’s existing public pension debt.  It is clearly “less drastic” than Colorado’s attempt to break fully-vested public sector retiree pension contracts.

Here are a few excerpts from Pennsylvania Governor Tom Corbett’s recent 2013 State of the State address:

“Resolving our pension crisis will be the single most important thing we do for decades to come.  I will not allow any cuts to any benefits of our retirees.”

“Let me repeat that: no cuts to any retiree benefits. They earned their retirement. They earned their guaranteed security.”

“Nor will I allow any pension dollars already earned by any current employee to be diminished in any way.”

Link:

http://www.governing.com/news/state/pennsylvania-corbett-2013-speech.html

Nor, will U.S. courts allow state and local governments to abandon their contractual obligations . . . particularly if other “less drastic” alternatives to contract breach are available to those state and local governments.  Dozens of “less drastic” alternatives to public pension contract breach have been documented at saveperacola.com.  The U.S. Supreme Court has found that: “If a state could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all . . . (U.S. Trust.)”

Here are a few excerpts from a PennLive.com editorial suggesting yet another “less drastic” alternative to public pension contract breach:

“As discussed in last week's PennLive editorial, Pennsylvania faces unfunded public sector pension obligations of $41 billion.  And proposals are proliferating to reform pension parameters in ways which are likely to face protracted legal challenges.”

“Apparently, we will be tied in binding budgetary and legal knots for many years to come.  Could it be otherwise? Might someone undo the knot, as in the Gordian legend?”

“Perhaps Pennsylvania should start acting as the energy-rich state that it has become.  Thanks to the thousands of Marcellus shale wells, and the expected growth of such activities, the state could obtain resource royalty revenue, if a bold policy pivot can be accomplished.”

“Other energy-rich states realize sizeable revenue streams from royalty fees on oil and natural gas; our closest competitor, West Virginia, imposes a 6.1% effective royalty rate.  Other states such as Texas, Oklahoma, North Dakota, and Alaska, all receive significant royalty revenue. Pennsylvania is truly exceptional in its forgoing of such revenue.”

(My comment: How do royalty fees on oil and natural gas in Colorado compare to West Virginia’s 6.1 percent fee level?  My guess is that another “less drastic” alternative to Colorado’s pension contract breach will be found here.)

“Last year, Pennsylvania opted for an impact fee structure on natural gas which brings in significantly less tax revenue, than a volume based royalty.”

Link to the PennLive.com article:

http://www.pennlive.com/opinion/index.ssf/2013/03/op-ed_leveraging_marcellus_shale_to_pay_for_pension_reform.html

Here’s a thought.  Instead of our elaborate charades in Colorado, why don’t we just pay our public pension debt?  A Boston College Center for Retirement Research paper notes that even when we consider the most recent downturn in U.S. equity markets, state and local governments could meet their contractual public pension obligations with a reasonable increase in pension contributions:

“While the impact of the financial crisis on state and local pensions will likely require spending to increase, the most recent studies find that the share of state and local budgets dedicated to pension contributions would likely need to rise to about five percent on average, and to about eight to 10 percent for those with the most seriously underfunded plans. (Alicia H. Munnell, Jean-Pierre Aubry, and Laura Quinby, “The Impact of Public Pensions on State and Local Budgets,” Center for Retirement Research, October 2010).”

If you are also sick of the charades, contribute to saveperacola.com.  (Their website explains the process.)  Support the sanctity of contracts in the United States.  We are not a Banana Republic! Also, Save Pera Cola has a Facebook page, “Friend” Save Pera Cola!