The House Tuesday voted 36-29 to pass Senate Bill 10-001, the plan to restore the Public Employees’ Retirement Association to solvency over the next 30 years.
Because there were no House amendments to the Senate-passed version, the bill (text) now goes to Gov. Bill Ritter for signature.
Passage of the measure removes one big item from the legislature’s 2010 checklist. (A second major item also was checked off Tuesday with final House approval of some key tax bills. See bottom of this story.)
Although some Republicans argued long and hard against the PERA bill, the measure survived intact after a crucial set of amendments were added in a Senate committee, changes designed to gain the support of organized employee groups. The bill was pushed by the bipartisan team of Senate President Brandon Shaffer, D-Boulder, and Senate Minority Leader Josh Penry, R-Grand Junction.
Legislative leaders worked to pass the bill before March 1 in order to avoid the cost of a 3.5 percent retiree benefit increase scheduled to go into effect on that date.
A major element of the rescue plan is reduction of that 3.5 percent annual boost to 0 percent for the coming year and to 2 percent thereafter. In the future, certain conditions will have to be met for the 2 percent figure to change.
While employee and retiree organizations backed the bill, many individual retirees are unhappy with measure, arguing that 3.5 percent is a contractual right and can’t be changed. PERA officials believe the change is legal because of “actuarial necessity,” meaning that the financial condition of the system is so serious that major changes are allowed to make PERA actuarially sound.
The plan will not work financially without the reduction of retiree benefits, according to PERA.
Interestingly, in a year when the state is scraping for every dollar of tax revenue, the 0 percent requirement this year will reduce state income tax collections by $3 million, according to legislative fiscal analysts.
Some observers expect a retiree lawsuit on the 3.5 percent question.
Other provisions of the bill change employer and employee contributions, set new rules for working retirees, change calculations for determining the amount of retirement benefits, impose new rules on employees who leave the system before retirement and increase age and service requirements for some employees.
The bill imposes new increases in employer and employee contributions on top of already-scheduled hikes. By 2016, school districts will have to contribute 14.65 percent of payroll to PERA. Employees will have to pony up 13.5 percent by 2018. (The employee contribution is determined by a formula that takes 8 percent from individual employee paychecks – the current rate – and then additional money from district funds that supposedly would otherwise have been used for employee salaries. The 8 percent direct deduction won’t change under the plan.)
The comparable figures for the DPS Division of PERA are 18.25 percent for employers and a combined 13.5 percent for employees. (The system has separate Schools and DPS divisions because DPS was added to the system only this year.)
Its investments hollowed out by the recession, PERA’s net assets available for benefits dropped from $43.1 billion at the end of 2007 to $30.8 billion at the end of 2008, a loss of more than 25 percent. The system pays about $3.1 billion in benefits a year and receives about $1.7 billion in contributions from covered employees and their employers. PERA overall is about 70 percent funded.
The system has 190,684 active members, 81,248 benefit recipients and 143,619 inactive members (people with eligibility but no longer working in PERA-covered jobs.)
While often thought of as the state pension system, PERA membership is dominated by employees of schools and colleges. Of PERA’s 190,684 active members, 118,547 are in the school division. Some 44,806 people receive benefits from the school division.
In 2008 employers paid more than $430 million into the school division trust fund while employees contributed about $304 million. There were about $1.4 billion in benefit payments. Because of the hit taken in PERA’s investments, in 2008 the net assets of the school division trust fund dropped from about $23 billion at the beginning of that year to about $16 billion at year’s end.
The state division includes employees of 28 colleges, universities and other education agencies, with 11,679 members (about 20 percent) accounted for just by the University of Colorado, Colorado State, Metro State and Front Range Community College. Some higher ed employees have access to other retirement plans.
While PERA investments reportedly rebounded somewhat in 2009, system officials repeatedly have told legislators that investment income alone can’t return PERA to solvency.
Tax bills also ready for Ritter
Another big milestone was passed Tuesday when the House agreed to Senate amendments and repassed eight bills that will eliminate certain tax exemptions.
The measures, House Bills 10-1189-1195 and 1199, are projected to raise about $148 million in revenue for the battered state treasury.
The measures are backed by education groups because they believe cuts to state support of K-12 education will be deeper without the additional revenue. Even with the additional money, schools are facing cuts of at least $350 million in 2010-11.
The proposal of greatest interest to the public probably is House Bill 10-1191, which would eliminate a sales tax exemption on some soft drinks and candy.
Debate over the tax package has been partisan, ideological and very prolonged in committee rooms and on the floors of the House and Senate. Democrats have argued that the bills are a modest imposition on business to help maintain state services.
Minority Republicans believe that raising taxes is the wrong thing to do in tough economic times and also is unconstitutional. (Democrats are relying on a 2009 Colorado Supreme Court decision about the Taxpayer’s Bill of Rights as the legal justification for changing the tax policies without voter approval.)
In addition to soda and candy, the measures change tax exemptions for direct mail advertising materials, energy used in industry, software, some online sales, food containers and pesticides.
Legislative leaders also pushed for March 1 passage of the tax package so that some revenue would be available to help balance the 2009-10 budget.
Use the Education Bill Tracker for links to bill texts and status information.