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Fiscal stability panel saves worst for last

The legislator-citizen commission that’s studying the state fiscal system had a long day of state agency briefings Tuesday but didn’t take on two of the most serious financial issues – government employee pensions and higher education – until the end of the agenda.

The 16-member Long-Term Fiscal Stability Commission is assigned to come up with suggestions for modernizing Colorado’s tangled financial system and has spent its first three meetings taking a crash course on state spending and structure and hearing testimony from a wide variety of fiscal experts, government officials and agency directors.

Late in the afternoon, Meredith Williams, CEO of the Public Employees’ Retirement Association, repeated for the commission the bad news he’s been sharing for months with other state leaders – the recession has hit PERA very hard.

The association has more than 190,000 active members – including teachers across the state and most state and local workers – and more than 81,000 benefit recipients.

The future of the pension plan is of keen interest to both teachers who support it with payroll deductions and depend on it for retirement income and also to the school districts that also must contribute.

PERA’s had an up-and-down history in this decade. The pension system was 105 percent funded at the end of 2000, but it’s been buffeted since by broader economic problems and by – in retrospect – bad policy decisions by the legislature, which sets contribution and benefit rules.

Some of those since have been reversed, and “We were ahead of our projections” for restoring the system’s financial health, Williams said. “Then 2008 happened.”

The pension fund lost 26 percent of its value in 2008, Williams said, although it’s up 3.1 percent so far this year.

He explained that the PERA board is in the middle of an extensive planning process for how the agency can cover its unfunded liabilities, a plan that will be ready by mid-November.

“Absolutely everything is on the table,” Williams said, including benefit cuts and contribution increases. PERA is funded by contributions from both civil servants and the government agencies that employ them – meaning, in the end, taxpayers.

He predicted the proposals, expected to be a major agenda item for the 2010 legislative session, “will be medicine that won’t taste good to anybody.”

Wilson’s sobering presentation was followed by an hour’s briefing on state colleges and universities, considered the most financially vulnerable of the state’s largest agencies.

David Skaggs, director of the Department of Higher Education explained that higher ed – for the moment – is being held at 2008-09 funding levels only with federal stimulus money, which runs out in 2011.

After that, he said, “the fiscal cliff that looms for higher education … is absolutely breathtaking.”

But, much of the briefing focused how higher education got into the current mess. Dennis Jones, president of the National Center for Higher Education Management, and Charlie Lenth, vice president of the association of State Higher Education Officers, walked the commission through a Power Point presentation on trends in higher education funding. (Read that presentation here – PDF file.)

Among trends they highlighted were:

Nationwide, tuition’s share of total higher ed support has risen from 23 percent to 36 percent since 1993.

Colorado is at the bottom of the 50 states in total higher ed revenues per student at research institutions and four-year colleges and at 47th for community colleges.

The U.S. now ranks 10th in the world for college degrees held by young adults.

The percentage of Colorado young adults with college degrees is low. Jones said the most recent cohort of young people in the college graduation cohort is the “least well educated group that Colorado has had for 40 years.” He added that Colorado is “one of the states most dependent on talent [college graduates] from someplace else.”

The commission’s day started with testimony about K-12 funding from representatives of Believe in a Better Colorado, a coalition of the Colorado Education Association, the Colorado Association of School Boards and the Colorado Association of School Executives.

“Our highest priority is constitutional and fiscal reform,” said Jane Urschel of CASB, noting the knot of revenue limitations and spending requirements in the state constitution. “Formulas are wonderful servants, but they are terrible masters.”

A separate interim committee is studying the school finance system.

The fiscal stability panel also heard Tuesday from directors of the state health care policy and financing, transportation, human services and judicial departments, the most costly state agencies along with K-12 and higher education, and of the Department of Personnel and Administration.

On Wednesday the commission will hear from such state leaders at former Sen. Hank Brown, former state Sen. Norma Anderson and former House Speaker Andrew Romanoff, plus take open public testimony.

The real fun starts next month, when the ideologically diverse commission will start trying to develop and agree on specific reforms.

Panel chair Sen. Rollie Heath, D-Boulder, surprised many of his colleagues when he announced just before lunch that he was having surgery later in the day for cancer. Heath expressed confidence that he’d be back in time for the August meetings.

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