HUDSON: Let’s not break our PERA promise to Colorado state employees
Author: Miller Hudson - March 14, 2018 - Updated: March 14, 2018
The second PERA reform/bailout bill (SB 18-200) in less than a decade reaches the Colorado Legislature this week amidst a clash of competing narratives regarding who is responsible for the pension plan’s precarious fiscal posture. On one side is a tale that greedy employees have maliciously and surreptitiously burdened taxpayers with a bankrupting obligation that guarantees public school teachers, together with participating state and local government workers, for the onerous costs of undeserved and lavish retirements. In contrast stands the charge that a negligent Legislature, irrespective of Democratic or Republican majorities, has consistently failed to adequately fund PERA pensions for decades, thereby igniting a budget-burning conflagration, which the arsonists are now rushing to extinguish in the guise of firefighters. This finger-pointing minuet obscures a fundamental conflict of values underlying the debate ahead.
Public pensions far outdate modern, capitalist democracies. Chinese Emperors, Pharaohs, even the Roman Empire discovered it was difficult to recruit quality help without the assurance of secure retirements. Twenty years service in a Roman Legion earned a soldier a farm, a veterans’ preference in government purchase of crops and an annual stipend following his return to Italy. The introduction of modern civil service systems during the nineteenth century, bolstered by the promise of public pensions, rapidly replaced the corruption of prevailing patronage schemes premised on brazen raids on the public purse. This trade-off was straightforward. While civil servants weren’t likely to get rich in public service, neither would they close their lives in penury. This arrangement proved a good deal for taxpayers. Competence, rather than connections, improved the efficiency while reducing the price of government.
A civil service requires a modest premium that must be offered to attract and retain a high quality workforce. However, when you view labor as merely another commodity, just one more input to be purchased along with supplies and services, then it makes perfect sense to seek out the lowest bidder. The cost of pensions, benefits, expertise and educational qualifications begins to look like waste. Surely private contractors can be found to perform public work at a savings to taxpayers. Yet, such shortcuts come at a substantial risk for potential expense when the low bidder fails to screen applicants. Do we really want school bus drivers with histories of drunk driving, drug use or pederasty? Alternatively, does it make better sense if government attempts to serve as a model employer? These questions arise at a time when private sector employers have curtailed pension guarantees and public sector critics are fanning the embers of pension envy.
In 2010, when the Legislature last tackled the PERA conundrum, I was serving as the Executive Director of the Colorado Association of Public Employees. In a discussion with the executive director of one of Colorado’s largest employer associations, a woman whose salary hovered in the vicinity of a quarter of a million dollars, she admonished me that state employees should take the same risks from a 401K account that she had to accept. She was adamantly opposed to the survival of a defined benefit option within PERA. When I inquired how much money she was placing in her 401K annually, she replied, “I try to set aside $50,000 each year.” I pointed out that this exceeded the average salary for a state worker, so it didn’t strike me the risk she wanted them to share with her was truly comparable. I don’t recall that I proved persuasive.
If we decline to assure secure retirements for our public servants today, we will transfer the cost of their support onto our children
Following the “dot.com” bust of 2001, then-Gov. Bill Owens soon proposed a budget freezing state salaries. At a meeting in his office, where I argued that employees should receive the raises they were promised when they were hired, he protested that the necessary dollars weren’t available. Of course this was an argument linked to priorities. When revenues shrink money does go missing – but missing for what? I then asked the governor, “Do you believe a State Trooper should earn enough to send his or her children to a Colorado University?” He protested that my question was unfair, repeating his previous assertion that he simply didn’t have the money. I replied, “Governor, this isn’t a trick question. It’s a matter of values. Do we owe state employees incomes that permit them to participate in middle-class life?” Neither of us anticipated the economic turmoil that lay ahead.
To be even-handed, in 2008 Democratic Senate President Joan Fitzgerald also refused to fund employee raises following voter approval of Referendum C, which had lifted TABOR spending limits. She announced in her office, “We didn’t tell voters we would be spending their money on state workers and we certainly aren’t going to do that in an election year.” My response to her that, “A Democrat who can’t vote for fair pay in an election year isn’t likely to do so in any year,” earned me a warning the next day that I was no longer welcome in the president’s office.
For all practical purposes, state salaries have remained frozen for nearly 15 years. Rising medical premiums and higher pension contributions have, in most years, actually reduced take home pay. Compensation is now running well behind comparable positions in the private sector and turnover is accelerating as workers flee state government for better pay. Although PERA’s unfunded liability is touted in alarm as tens of billions of dollars, this is an obligation spread across the next half century. The annual “fix” to fill this hole amounts to several hundreds of millions annually taken out of a $30 billion dollar budget – not painless, but hardly a calamity. It represents a somewhat tougher challenge for school districts, where personnel costs are a much larger proportion of total expenses, but still manageable.
The requirement in Senate Bill 200 that future pension contributions will be adjusted annually in response to cyclical economic forecasts is key to moving PERA from its recurring position in the fiscal spotlight. Economic circumstances have changed dramatically. For nearly 80 years PERA was a great buy for legislators, employees and taxpayers. Exempt from Social Security taxes, Colorado committed to provide a substitute for its public employees. That promise should not be broken now that the costs have grown marginally more expensive. If we decline to assure secure retirements for our public servants today, we will transfer the cost of their support onto our children — an embarrassingly frequent policy choice.