Colorado’s legislature made a $225 million annual promise to itself as well as the 630,000 members of the state pension fund and now, having broken that promise in 2020, lawmakers say they’re prepared to make things right.
Legislators have different ideas for how to do that, though, and their decision will affect not only the members of the Public Employees’ Retirement Association (PERA), but everyone else in Colorado who relies at any level on state government services and programs.
Alec Garnett, the speaker of the Colorado House, said “I think my jaw dropped and hit the ground” after seeing the price tag on a proposed 2022 bill that the legislative subcommittee overseeing the state pension fund wrote to make up for last year’s nonpayment.
The amount, in excess of $300 million, is a major outlier among the couple dozen proposals on a wide range of topics that lawmakers have crafted and given initial support to ahead of the next legislative session, which begins Jan. 12. That money would go toward paying down the more than $30 billion in unfunded debt to PERA retirees.
PERA’s membership includes current and former public employees, such as teachers, first responders, prison staff, university workers and snowplow drivers. All other Coloradans have a stake, too, in large part because the longer it takes to pay down the billions in PERA debt, the more years of state budgeting in which huge sums are unavailable for General Fund priorities like roads, schools, Medicaid administration and courts.
A promise from lawmakers
The legislature in 2018 passed the bipartisan and heavily debated Senate Bill 200, promising to kick in $225 million every year to pay off pension fund debt within 30 years. There were a few motivating factors at the time, including the threat that Colorado’s credit rating could be downgraded if the debt remained indefinitely.
That bill not only established a funding threshold for the legislature to meet each year, but also increased contributions for employees and employers. Next year employees will have to automatically contribute 11% of each paycheck toward retirement — that’s a slight bump from this year — and employers will have to contribute close to double that amount. Some of the money from the employer side goes to paying down the debt.
But while workers and employers have had to meet their obligations, lawmakers have not: With the pandemic just underway and lawmakers concerned about a profound and enduring recession decimating state finances, they decided through the budget last year to pass on the promised $225 million contribution. That recession never came to be — the state economy has already more than rebounded, with record projected money for the next budget — so now lawmakers are prepared to make up for last year.
“There are few opportunities the legislature has to keep its word,” House Minority Leader Hugh McKean, a Loveland Republican, said at a hearing last month on bills written by interim committees this summer and fall. “We make decisions on the fly when we need to, … but now we can look back and say, nope, we didn’t need to do that, let’s make (PERA) whole.”
Colorado’s Pension Review Subcommittee, which wrote the proposal, believes the state should also pay about $79 million in lost interest — investment gains the fund would have accrued above and beyond the $225 million, had it been paid in 2020. Hence the proposed price tag that shocked the speaker.
All of that comes on top of the expected $225 million the legislature would kick in this year, pursuant to the 2018 promise. This would mean roughly half a billion dollars, or more, out of a $40 billion state budget for the 2022-23 fiscal year, for this one purpose.
Disagreement over lost gains
A bipartisan committee of legislative leaders voted 15-2 in favor of repayment of the 2020 debt. The bill to do so is a sure thing to be introduced, in some form, during the next session.
But paying for lost investment gains seems less popular, as lawmakers say they worry about setting an unfair precedent.
State Sen. Dominick Moreno, a Commerce City Democrat and the vice chair of the legislature’s Joint Budget Committee, noted last month at the time of the vote that while the state has restored billons in funding eliminated early in the pandemic, it hasn’t made a habit of going above and beyond the amount cut.
“If we’re going to increase it (with interest) it is still largely speculative, in my view, and hasn’t happened for any other cut that was made,” Moreno said.
Republican state Sen. Paul Lundeen of Monument is also skeptical.
“I would argue that it’s very possible that the investment policy structure of PERA might have changed had they had the $225 million at the time, … and it might’ve been invested differently, and therefore the assumed return might have changed either up or down,” Lundeen said. “But in fact what this bill does is it seeks to assume some counterfactuals that we cannot know.”
Whatever repayment amount the legislature settles on has importance to millions of residents. If the state is to keep its 2018 promise, that debt must be paid off on way or another by 2048. And so far it’s been only employees and employers bearing the burden.
Senate Minority Leader Chris Holbert, a Douglas County Republican, said he’s an “enthusiastic yes” on repaying the 2020 sum plus interest.
“It wasn’t just on a whim that we said we’re going to miss that (obligation)” last year, he said. But, he added, “We made a commitment.”
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