March 17, 2013 11:42 AM UTC

Kentucky Governor Beshear: Reform State Tax Code to Meet Public Pension Contractual Obligations.

•  
• by: PolDancer

In 2010, the Colorado General Assembly looked first to break Colorado PERA retiree contracts.  A June 26, 2005, Rocky Mountain News editorial encouraged the Colorado General Assembly to seek new revenue to meet its contractual obligations, but this advice was ignored:

“In Oklahoma, voters earmarked a portion of the state's lottery proceeds to pay down $6 billion in pension liabilities.  Other states, including New Jersey, Illinois, Kansas and Maine, have sold bonds to pay off the unfunded pension liabilities.  Not that any of these actions are necessarily the right solution for PERA – but clearly something must be done about the looming shortfall.”

A November 15, 2009 Denver Post editorial encouraged the Colorado General Assembly to send an interrogatory to the Colorado Supreme Court seeking guidance on the constitutionality of proposed Colorado PERA pension reforms.  The Legislature also ignored this advice:

“First, let court rule on PERA: Before legislators take on reforms, they should first ask the state Supreme Court to determine how much leeway they have.”

“Legislators need to understand how much power a designation of ‘actuarially necessary’ gives them to modify benefits paid to members.”

“We think lawmakers should ask the state Supreme Court for a ruling so they know exactly what they can do.”

“Administrators of the Colorado Public Employees' Retirement Association, or PERA, recently asserted that the fund's foundering finances give the state the legal footing to cut future cost-of-living increases for people who already are retired.  But what if that were challenged in court and found to be illegal?”

“On the other hand, if annual hikes for retirees can be adjusted, why can't a case be made to increase the retirement age for many of those who are still working and contributing to PERA — a reform that is missing from the PERA board's plan?”

(My comment: Here the Denver Post editorial board identifies a pension reform that is “less drastic” than the breach of fully-vested Colorado PERA pension contracts.)

“It's in Colorado's best interest to get out in front of the PERA problem, file an interrogatory with the state Supreme Court, and get a clear fix on what legislators can and cannot do.”

http://www.denverpost.com/opinion/ci_13776995

In 2009, Colorado PERA campaigned for breach of pension contracts on a statewide “Listening Tour.”  Nine members of the Colorado Legislature attended the Denver meeting of this PERA “Listening Tour.”  But, what was the point of conducting a “Listening Tour,” when the proponents of breaking Colorado PERA retiree contracts had no intention of “hearing”?

A few days ago, the Kentucky Center for Economic Policy released an analysis of their state’s chronic underfunding of state public pension obligations.

http://www.kypolicy.us/content/not-paying-pension-bills-adds

A few excerpts:

“Not Paying Pension Bills Adds Up:”

“A major contributor to Kentucky's pension funding problem is the legislature's failure to make the full required contribution to the retirement system in recent years.”

(My comment: As we know, the Colorado General Assembly has failed to make approximately $5 billion in annual required contributions identified by its own actuaries in the last decade.  In 2009, at the Denver meeting of the Colorado PERA “Listening Tour” Colorado PERA’s General Counsel Greg Smith blamed the Colorado General Assembly for PERA’s fiscal downturn: “We have not been paid what’s called the actuarially required contribution.”  “We’ve not been receiving that full contribution in any of our divisions for many years . . . seven years to be specific.”

Link:

http://www.copera.org/pera/about/listeningtour.htm)

Kentucky Center:

“Shortfalls in payments started as early as 1993, but began in earnest in 2004.  As the first figure below shows, the state has shortchanged the pension system by at least $100 million a year since 2007 (total $1.8 billion.)”

“Since the contributions were not in the system to earn investment returns, the full impact of underfunding is even worse.  Taking those lost returns into account brings the total shortfall for the pension fund alone up to an estimated $2.4 billion by the end of 2014.”

(My question: What is extent of the General Assembly’s underfunding of its Colorado PERA pension contractual obligations when corresponding lost investment returns are also taken into consideration?)

Kentucky Center:

“How big a number is $2.4 billion?  At the end of 2012, the Kentucky Employees Retirement System pension fund had $3.8 billion in assets. So without the shortfalls the system would have around 63 percent more assets.”

(My question: What percentage of Colorado PERA’s trust fund assets have been lost due to the Colorado General Assembly’s combined PERA underfunding and lost investment returns in the last decade?)

Kentucky Center:

“Some of the benefit changes were made to encourage experienced employees to retire in order to save money in the already-lean budget—but the changes just shifted new costs over to the retirement system.”

(My comment: The Kentucky Legislature has followed the Colorado General Assembly’s PERA playbook:

“PERA bill expected to be retirement incentive,” by Marianne Goodland, April 6, 2000.

“An early retirement bill working its way through the General Assembly may be a true win-win situation: a good early retirement incentive for classified employees, increased health insurance contributions from employers and substantial savings for state government.”

https://www.cu.edu/sg/messages/2229.html)

“Befort also noted that several years ago, the Legislature and Gov. Bill Owens decided to encourage higher-paid employees to retire early.  Payroll expenses went down for the state, but PERA's costs increased, he explained.”

https://www.cu.edu/sg/messages/4405.html

December 31, 2000 Colorado PERA CAFR:

“The Governor’s office initiated HB 00-1458 to make early retirement more feasible and to achieve cost reductions, and the PERA Board of Trustees supported the bill.  PERA’s Board supported HB 1458 after it received assurance that this legislation would not affect the actuarial soundness of the PERA plan.”

From the PERA document “2000 PERA legislation,” updated May 4, 2000:

“The bill was initiated by the Owen’s administration and includes some features to make it more attractive for some long-term employees to leave state service and retire.”

Kentucky Center:

“Poor investment returns resulting from two recessions in the 2000s also worsened the problem, but Kentucky’s pension system wouldn't be a subject of such scrutiny if it were for investment results alone.  Kentucky's losses were on par with other states, but most of those states will return to adequate funding levels in the next few years because they did not underfund promised benefits.”

Link:

http://www.kypolicy.us/content/not-paying-pension-bills-adds

(My comment:  Public pension systems have significantly recovered in states that have kept up with their contractual obligations.  The fact that the Colorado General Assembly is now trying to push a debt that is the obligation of all Coloradans onto the backs of PERA pensioners is beyond the pale.)

The members of the Colorado PERA Board of Trustees are fiduciaries.  It is their fiduciary responsibility to ensure that the Colorado PERA trust funds are sound.  Colorado PERA officials have met with committees of the Colorado Legislature at least three times per year for decades.  Why have these PERA officials not been in the faces of legislators during those meetings?  Why have they not emphatically pointed out to the legislators that contractual public pension obligations take precedence over discretionary expenditures?

Why has the Colorado PERA Board of Trustees never adopted a resolution calling for the Colorado General Assembly to pay its public pension bills?  Is it just easier to break contracts?  At a minimum, public pension fiduciaries should ask governmental plan sponsors to meet their contractual obligations.  Kentucky’s public pension board has adopted such a resolution calling for full-funding of the state’s pension ARC:

“NOW THEREFORE, The Board of Trustees of the Kentucky Retirement Systems, by a vote of its members taken in public session at its regular quarterly meeting held February 21, 2013, hereby resolves that the Commonwealth of Kentucky should begin funding the KERS and SPRS plans at 100% of the actuarially recommended contribution rate (ARC) in the next biennial budget and thereafter.

Approved this 21st day of February 2013:

Link:

https://kyret.ky.gov/uploads/committees/02_21_2013_Trustee_Resolution.pdf

Kentucky Governor Steve Beshear’s 2013 State of the State:

“I agree that we need to reduce our unfunded (pension) liability – and the longer we put this off, the bigger the problem will be.  The question – again – is: ‘Where will the money come from?’”

“Well, the answer is obvious: We must modernize our out-dated tax code.  Kentucky has commissioned 12 studies of its tax system since 1982.  I created another one last year to update the work.  And every study has reached the same conclusion: Kentucky's tax code works against us, not for us.  We need a tax structure that's fair to all of our citizens and easy to understand; that helps recruit business, not drive it away; and that – because it's aligned with a 21st century economy – is able to bring in the revenue we need to fund critical services.”

http://www.governing.com/news/state/kentucky-beshear-2013-state-of-the-commonwealth.html

Public pension reforms that are “less drastic” than Colorado’s breach of fully-vested pension contracts have been proposed at the Kentucky Legislature:

“Stumbo, D-Prestonsburg, said Thursday that options under consideration include revenue from Internet keno, instant racing and lottery sales taxes but not casino gambling, which he predicted would not have a chance of passing the Senate this year.”

http://www.courier-journal.com/article/20130221/NEWS0101/302210088/Senate-Majority-Leader-Damon-Thayer-argues-pension-reform-regular-session?nclick_check=1

Colorado PERA active members and retirees, many in Colorado’s legal, media and political communities have conspired to break your pension contracts.  Don’t let it happen, contribute at saveperacola.com.  Friend Save Pera Cola on Facebook!