Legislators, JBC look for PERA fix
By Marianne Goodland
The Joint Budget Committee has voted to sponsor a budget-balancing bill to increase employee contributions to the Public Employees’ Retirement Association by 2.5 percent for the next two years, and decrease the employer contribution by the same amount. If passed, it would save the state $20.3 million in general fund money per year.
At the same time, lawyers from Legislative Legal Services are watching lawsuits in New Mexico that challenge a 2008 bill passed by the New Mexico Legislature that does nearly the same thing.
At issue is whether an employee contribution is “a protected contractual right.” In a 2004 opinion, then-Attorney General Ken Salazar said there was no clear answer on whether an employee could be asked to contribute more to PERA to shore up the plan. If the contribution is a contractual right, he wrote, employees could not be asked to increase contributions unless it was balanced by an increase in benefits, was “actuarially necessary,” or the increase improved the pension plan.
On Jan. 14, the JBC looked at the 2.5 percent swap as part of a request from Gov. Bill Ritter to balance the 2009-10 budget. Ritter asked the JBC to carry legislation to change the contribution rates as an alternative to more furloughs. The savings do not include those gained by institutions of higher education; instead, a JBC staff memo said the institutions would “apply the savings to other institutional programs.”
Institutions of higher education get their state funding as a lump sum and decide for themselves how to allocate it. If this bill becomes law, they will have to make the same PERA funding swap as other agencies, but no money would come back to the state as a result.
JBC members raised concerns about the legal issues involved. Sharon Eubanks from Legislative Legal Services explained that with regard to contractual rights there is no clear answer either in case law or anywhere else, and brought up the lawsuits in New Mexico. However, she said, she had not been able to find out whether the issue of the contractual right is a basis for the lawsuits, or if they were procedural claims.
Without a clear answer, if the JBC decided to carry the bill, it would incur a risk, she said. “Do it and get sued, or don’t do it.”
JBC members expressed concern that the increase would be another hit on state employee salaries. Rep. Mark Ferrandino, D-Denver, pointed out that state employees haven’t had a raise in two years and that this would result in a 2.5 percent cut in pay. Sen. Al White, R-Hayden, responded that private companies have been cutting pay by 5 to 15 percent.
The committee voted unanimously to sponsor a bill that would implement the change for two years rather than one, and said that if state revenues improved in 2010-11, they could pass another bill to end the change early.
The two lawsuits in New Mexico revolve around 2008 legislation that sought to increase state employee contributions to its public pension plan by 1.5 percent.
New Mexico House Bill 08-54 was intended to cover an $80 million general fund shortfall in the 2009-10 budget year. That state faced a $372 million overall general fund shortfall in 2009-10; general fund revenues in 2010-11 are expected to grow by about 1 percent.
One lawsuit was filed by a part-time employee, Joan Cernock, who claimed the 1.5 percent contribution would be a hardship on employees who make less than $20,000 per year. According to published reports, the New Mexico Supreme Court dismissed Cernock’s lawsuit in November, confirming that the Legislature’s action was constitutional. A second lawsuit, filed by four public unions that also questioned the constitutionality of the law, is pending and is awaiting a February court hearing in Albuquerque District Court. Robert Desiderio, the lead attorney for the plaintiffs, told The Statesman that the basis for the lawsuit is on a “takings” clause in the New Mexico constitution. “Employees have lost some of the value of their pension,” he said. Contractual rights are not really an issue in the lawsuit, he added.
If the JBC bill is passed by the Colorado General Assembly, the contribution change would expire before the implementation of additional employee and employer contributions required under Senate Bill 1, which was introduced last week by Senate President Brandon Shaffer, D-Longmont, and Senate Minority Leader Josh Penry, R-Grand Junction.
According to a posting on the Denver Post Web site on November 16, an e-mail address, firstname.lastname@example.org, had been set up to collect names for a class-action lawsuit against the pension plan. In particular, the lawsuit would probably challenge legislation to reduce or eliminate the annual cost of living adjustment.
Under SB 1, beginning in 2012, the COLA adjustment would be capped at 2 percent and could be dropped to zero if PERA experiences negative investment returns. In 2010 and 2011, the COLA adjustment would be zero if SB 1 is signed by early March.
Guy Santo, a former employee of the Colorado Department of Labor and Employment, responded to questions sent to the hotmail address and told The Statesman that they were not ready to go public at the time the e-mail address was publicized on the Denver Post Web site. They have gotten “double-digit” e-mails from people as a result of that comment, Santo said this week. They have not yet launched any kind of public effort to draw more potential plaintiffs, and are instead waiting to see what happens at the Capitol in the coming weeks. “We are hopeful the political process can still result in not diminishing the COLA for vested PERA members,” Santo said.
Legislators look at other changes
In the meantime, House Republicans are at work coming up with bills that will change PERA in other ways.
Rep. Randy Baumgardner, R-Hot Sulphur Springs, is planning a bill that would remove state patrol officers from the state division of PERA and put them into their own division.
PERA has five divisions: local government, judiciary, school, state and Denver Public Schools. Of the five, the local government and judicial divisions are in the best financial shape; both have enough assets to pay benefits for years to come. And of the five, the state division is in the worst shape financially; projections from Dec. 31, 2008 show that it could be broke in 26 years without major changes.
Baumgardner explained that the state patrol is treated differently within PERA than the rest of the state division. Under current PERA rules, most employees can retire with full benefits at age 50 with 30 years of service, or by the rule of 85 (a combination of age plus years of service equaling at least 85). State patrol officers can retire with full benefits at 50 with 25 years of service, but they also pay a higher contribution rate. “They are the front lines and protect the public,” Baumgardner told The Statesman.
Baumgardner has asked PERA if the state patrol division would be more financially sound if its officers had their own division. He said he has met with PERA officials who were opposed to the idea.
Even if the state patrol division was less financially sound than the overall state division, Baumgardner said many state patrol officers like the idea of having their own division and might be willing to kick in another 1 percent. “The troopers I’ve talked to like it,” Baumgardner said. His bill should be out the first week of February.
Lonnie Westphal, executive director of the Association of Colorado State Patrol Professionals, the union representing state patrol officers, told The Statesman that they have been working with Rep. Baumgardner to see if it would be advantageous to troopers. “There are some actuarial questions that should be answered,” Westphal said.
Rep. Jim Kerr, R-Littleton, has a bill close to being ready to go as well. Kerr’s idea is to change the composition of the PERA board.
Currently, the board has 15 members plus the state treasurer, who serves as an ex-officio member. PERA members elect 11 of the 15; the governor appoints three and one is an ex-officio non-voting member representing the Denver Public Schools Retirement System. The state division has three elected members; the school division has four and retirees elect two.
Kerr said that 12 members who are recipients of PERA benefits is too many and raises conflict of interest issues. His bill would seek to reduce the number of elected members to one from each division.