When last we left House Bill 22-1029, it had passed the House Finance Committee on a 10-1 vote, and been sent to House Appropriations. The bill would not only restore the statutory annual payment of $225 million to Colorado’s Public Employee Retirement Association (PERA) that the legislature skipped in 2020, it would make up the investment income that PERA missed by not having that money available.
But a funny thing happened on the way to Appropriations. Thus far, the bill has not been calendared for that committee, and with only a few days left in the session, there’s a risk that it might simply die for lack of time.
The delay appears to be the result of interference by Governor Polis that amounts to emptying the PERA Payment Cash Fund, reducing payments for the next three fiscal years, and counting on expected returns to make up the difference.
Where HB 1029 would pay PERA $307 million out of the cash fund, and then resume the annual $225 million payments, reports are that the governor would pay the entire $380 million balance in the cash fund now, and then pay $35 million over the following two fiscal years, and $130 million in fiscal year 2025-26. The argument is that while the cash fund earns about 1% a year, PERA’s expected rate of return is 7.25%, so it makes little sense to leave the $73 million balance in the cash fund.
In fact, the proposal would leave PERA worse off after fiscal year 2025-26, to the tune of at least $400 million, even at the expected rate of return. The higher the rate of return over those years, the worse off PERA would be compared to where it would have been.
The governor’s office proposes to limit the damage by using the Automatic Adjustment Provisions (AAPs) created in 2018 under Senate Bill 200. Those provisions reduce cost of living adjustments (COLAs) and increase employee contributions if PERA’s likelihood of reaching full funding by 2048 falls below a certain threshold. The proposal would restore the full $225 million funding in any year where the COLA increases were lower than 2022, or employee contributions were higher than 2022.
The problem with this should be obvious. Not only does it facially leave PERA worse off by several hundred million dollars under nominal conditions, is misunderstands the point of the AAPs, and uses 2022 as an arbitrary standard for restoring the full payments. The point of the AAPs is to ensure full funding by 2048. Recent returns have led to a possible scenario where those AAPs are relaxed slightly in the upcoming fiscal year. If they are tightened again soon, it means that PERA already is at risk of not reaching full funding by the target date.
Moreover, by emptying the cash fund now, Governor Polis eliminates the cushion it provides for years where tax income falls short of expectations, which are likely to coincide with years of lean returns for PERA.
One is left wondering what his motivation is for interfering in PERA’s funding mechanism so soon after its adoption, and at a point where PERA’s future is still precarious. Moreover, this proposal has been on the table since last fall when it was recommended by the PERA subcommittee. Diving in at the last minute is all too typical of how the legislative sausage gets made, but Polis has no excuse. The only reasonable conclusion is that he thinks he’s found something better to spend the money on, and it’s exactly that sort of thinking that got us into this public pensions hole in the first place.
Joshua Sharf is a senior fellow in fiscal policy at the Independence Institute, a free market think tank in Denver.
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