The State with an Extra Billion Dollars . . . Sadly, Forced to Break its Contracts.

The Colorado Legislature and the state’s public pension administrator, Colorado PERA, claim that a financial emergency necessitates the breach of Colorado’s public pension contracts.  But, how can legislators make this claim when they have an extra one billion dollars to spend?  Do they simply prefer to spend this billion on discretionary governmental programs instead of meeting the state’s contractual obligations?  Perhaps they wish to augment the $538 million they have already allocated toward local government pensions that are not the contractual obligation of the State of Colorado?  Perhaps they wish to make another $100 million grant of discretionary property tax relief?  The objective of a politician is to win votes.  How many votes will be won by simply meeting the state’s contractual obligations?

The Colorado Legislature claims that the state’s pension system, Colorado PERA, must be funded at a 100 percent level TODAY, although the PERA pension system’s obligations will come due over the next 70 years.  Legislators insist that PERA be funded at a 100 percent level although the PERA pension system has been funded at a 100 percent level just twice in its 82 year history.

Claiming that the Colorado PERA pension system is “broke,” because the Colorado Legislature cannot pay 100 percent of contracted pension benefits right now is like saying every Colorado homeowner is broke because they can't pay off the entire amount of their 30-year mortgage right now.  It is nonsensical.

From the Denver Business Journal:

“ . . . next year’s money — $924.3 million above the amount the state will spend this year, according to Legislative Council — is up for grabs.”

http://www.bizjournals.com/denver/news/2013/03/18/colorado-state-revenue-picture.html?page=all

From EdNewsColorado:

“State economic forecasts released on Monday show revenues higher than predicted in the December estimates, creating a significant windfall for one of the state funds that supports K-12 education.”

“Revenues are rising because of state economic growth that is outpacing the nation’s economic recovery.”

“‘We know that there’s new money available’ but don’t know what the potential demands are, Sobanet said.  ‘We’re at the very beginning stages’ of totaling everything up.”

http://www.ednewscolorado.org/news/state-revenue-picture-brightens-again

From the most recent Colorado Economic Forecast:

“The recovery in Colorado’s economy is among the most vibrant in the nation.”

“In FY 2012-13, the General Fund is expected to end the year with a surplus of $848.0 million.”

“The General Assembly will have $924.3 million more to spend in the General Fund during FY 2013-14 than the amount budgeted for FY 2012-13.”

http://www.colorado.gov/cs/Satellite/CGA-LegislativeCouncil/CLC/1251640260333

From the January 29, 2010 Senate Finance hearing on the bill that broke Colorado PERA retiree pension contracts (SB10-001):

“Retiree Carol Pace said the (PERA) COLA is a contractual obligation and ‘if you break this contract you will break others.’  She asked that the committee fully explore the legal ramifications, and to send interrogatories on the bill’s constitutionality to the Supreme Court ‘before you put us in a position of taking you to court.’”

http://www.coloradostatesman.com/content/991568-pera-reform-bill-passes-first-test-capitol

Colorado PERA Executive Director Greg Smith at this hearing:

“There are few case laws that address the issue, Smith said, but one, regarding a fire and police pension plan, was litigated when the plan ran out of money and benefits were being paid for with current revenues.”

http://www.coloradostatesman.com/content/991568-pera-reform-bill-passes-first-test-capitol

From the September 24, 2010 Denver Post:

Senate Bill10-001 not only reduces current, contractually agreed upon benefits, it allows the legislators, rather than fiscal professionals to determine where the trigger point is to declare funding shortfalls and emergencies.  By precedent, the only other pension fund in the U.S. that was declared by the courts to be actuarially emergent was flat broke.  Colorado PERA has a large reserve that has tempted legislators and governors for years, but before the last legislative session, they couldn't figure out how to get at it.  In 2003, Governor Bill Owens went after it, but he was thwarted by an Attorney General’s opinion that the state could not walk away from its contracts.  So that administration took a different tack by offering early retirement buy-outs and reduced rates to purchase service credit.  Governor Owens dipped into Colorado PERA funds through the back door, moving state employees at the top ends of the pay grades from state paychecks to Colorado PERA paychecks.  In other words, Governor Owens reduced state costs by shifting them to Colorado PERA and at the same time he reduced the state's PERA contribution percentage, beginning the slide from 105% funded to current levels.  Granted the slide was accelerated by the economic downturn, but it began when the state figured out how to supplement the General Fund by raiding PERA trust funds.  Senate Bill 10-001, if upheld by the courts, will open the front door to Colorado PERA resources.

http://www.denverpost.com/legislature/ci_16159422

Breach of Colorado PERA pensioner contracts . . . Reasonable?  Necessary?

Colorado PERA active and retired members, Colorado state legislators who now regret their support for SB10-001, newly installed Colorado legislators who are unfamiliar with public pension administration . . . help prevent Colorado PERA’s proposed breach of public pension contracts.  Fight for the rule of law in Colorado, and contribute at saveperacola.com!  Also, “Friend” Save Pera Cola on Facebook!

Algernon Moncrief

About Algernon Moncrief

Independent Nationwide Public Pension Rights Blogger.

One Community Comment, Facebook Comments

  1. hawkeye says:

    SB10-001 was a marketing marvel pushed by dozens of lobbyists.  A "2/2/2 shared sacrifice" ruse was used to persuade active public employees to jump aboard the so-call PERA reform bandwagon, and the social concept of "intergenerational equity" was used to pique the social consciences of a number of retirees to accept a benefit reduction.  Indeed, PERA mounted quite masterful campaign to claw back a vested benefit.  Many anti public pension groups in other states are keenly observant of the the lawsuit in progress to overturn SB10-001.  Indeed, there are many efforts taking place today in other states (NM, IL) to lower or remove COLAs.

    Over the years (actually decades), I have expressed concern to both PERA executives and legislators that our vested retirement benefits were written into statute rather than into the state constitution, as I suspected something like SB10-001 would eventually take place.  I was assured by PERA and legislative leaders that my benefit (including the annual increase of 3.5%) would be protected under the contract clause in the state constitution.  Now PERA (and Denver District Judge Robert Hyatt) are saying that the 3.5% annual increase is not contractual, and if the courts deem it contractual then "actuarial necessity" turns the annual increase (COLA) into a gratuity.  However, the Colorado Court of Appeals, wants it both ways saying an annual increase is contractual (not 3.5%) but also a gratuity subject to "actuarial necessary" … whatever that means.

    In the meantime, the state legislature continues to underfund the PERA trust fund by giving out discretionary tax breaks and credits, and by reducing income tax from 5.00% to 4.63% and sales tax from 3.00% to 2.90%, allowing sales tax exemptions to a multitude of special interests).

    As to the increasing revenue stream, whether it's an extra $1B or even $5B, I believe the state will continue to underfund PERA in order to invoke keep the "actuarial necessity" card in play in the future. 

     

              

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