legislative wrap-up

Pension study bill may set stage for future PERA debates

Criticism of the state pension system was muted during the 2014 legislative session, but lawmakers quietly passed what potentially could be one of the more significant pension bills in four years.

The future of the Public Employees’ Retirement Association (PERA) is of vital interest to the state’s teachers and school administrators, all of whom are covered by the system and who make up about 65 percent of PERA’s nearly 200,000 members.

It’s also of concern to school districts, which are paying an ever-increasing percentage of their payrolls to PERA.

Senate Bill 14-214 doesn’t make any changes in PERA – it just launches three pension studies. But the results of those reviews could set the stage for legislative decisions starting in 2016.

Public employee pensions have been the focus of growing concern in recent years, especially since the 2008 recession decimated the value of pension fund portfolios. PERA’s liabilities, for instance, are only about 65 percent funded. (Get national background in this brief from the Pew Center on the Pew Charitable Trusts.)

A 2010 law that passed with bipartisan support made important changes to PERA, including less generous age and service requirements for employees hired after the law was passed. The law also allowed reduction of cost of living increases for current retirees, a provision that drew a lawsuit. That case is pending before the Colorado Supreme Court (see story).

The 2010 law didn’t ease concerns about PERA on the part of some Republican lawmakers, who in recent sessions repeatedly proposed bills to change the PERA retirement age, tweak calculation of benefits, convert PERA to a defined contribution system, change the membership of the PERA board and target highly paid retirees (like former governors). None of those measures passed, and only two such bills were introduced this session.

What the 2014 bill would do

SB 14-214 will set in motion three PERA studies, the latter two of which are of particular interest to K-12 employees. The studies would:

  • Provide a more detailed look at the total compensation of state employees, including pension costs
  • Evaluate the costs and effects of switching PERA to a defined contribution system from the current defined benefit system
  • Determine methods for tracking the financial health of PERA at intervals over the next 30 years

Supporters of the bill hope the results of the studies, particularly the second and third ones, will provide information that will calm the ideological and somewhat circular arguments over PERA.

“Having the data to shut down those debates could be useful,” said Sen. Pat Steadman, D-Denver and vice-chair of the Joint Budget Committee. That panel’s six members sponsored SB 14-214.

Steadman said the third part of the study “is going to be the piece that’s the most interesting and that makes a potentially interesting 2016 session.”

The 2010 PERA reform law (Senate Bill 10-001) was designed to make the system fully funded in 30 years, based on a variety of assumptions about investment rate of return, contributions, retirement payouts and many other factors. But the problem has been there’s no way to gauge how the law is working along the way, leading to unproductive “sky is falling” vs. “stay the course” arguments that aren’t based on data.

Henry Sobanet, director Office of State Planning and Budgeting / File photo
Henry Sobanet, director Office of State Planning and Budgeting / File photo

State budget director Henry Sobanet notes that there have been “all kinds of pension questions” ever since the 2010 law that can’t really be answered.

“Take for example this idea of the rate of return,” referring to the predicted return on system investments.

The PERA board has been assuming an average 8 percent return over 30 years, a figure that some, including Republican state Treasurer Walker Stapleton, have criticized as unrealistic by some. The board recently lowered the assumption to 7.5 percent.

The problem, Sobanet notes, is “you really don’t know until 30 years from now” if the rate of return assumption was correct.

“Isn’t it more important to think about what we could do along the way to know if we’re off” in the effort to make the system solvent, he said.

The idea behind the third study is to come up with methods for assessing what’s happening at shorter intervals. “I think what this will do is give us a more explainable insight into whether the [2010] model is working,” Sobanet said. “I think we can do more to show people why we think it’s on track.”

Referring to all three studies, Sobanet added, “I just don’t think it’s productive to have these discussions theoretically. We should have some numbers associated with this.”

PERA a touchy issue

Suggestions for changing the pension system can raise anxieties quickly, as shown by the pending lawsuit and by the passionate testimony from retirees almost every time a PERA bill is heard in a legislative committee.

Given that, Sobanet is careful in discussing the studies, noting that his boss, Gov. John Hickenlooper, “supports PERA, and he also supports defending Senate Bill 1.”

Sobanet continued, “This is a data investigation. We’re not proposing changes to PERA.”

PERA background

The school division is the largest of PERA’s six divisions, with more than 115,000 members. The separate DPS division has about 14,000 members. (The DPS pension system was merged into PERA a few years ago, but the assets and benefits are kept separate.)

The pension system has about $43 billion in net assets, and its liabilities were 63.2 percent funded at the end of 2012. The 2013 PERA financial report is expected to be released in late June. (See 2012 report here.)

School districts contribute a base 10.15 percent of payroll to PERA, plus an additional 6.4 percent in supplemental payments, some of which is money that otherwise would have gone to employees as salary. Employees contribute 8 percent of pay. DPS, which is a separate division, has a variable contribution schedule that can be as high as 20.15 percent.

Those supplemental payments, known by the acronyms SAED and AED, are scheduled to rise to a total of 11 percent by 2018.

Local funding

Aurora board to consider placing school tax hike on November ballot

A kindergarten teacher at Kenton Elementary in Aurora, Colorado helps a student practice saying and writing numbers on a Thursday afternoon in February 2017. (Photo by Yesenia Robles, Chalkbeat)

Seeking to boost student health and safety and raise teacher pay, Aurora school officials will consider asking voters to approve a $35 million tax plan in November.

The school board will hear its staff’s proposal for the proposed ballot measure Tuesday. The board may discuss the merits of the plan but likely would not decide whether to place it on the ballot until at least the following week.

Aurora voters in 2016 approved a bond request which allowed the district to take on $300 million in debt for facilities, including the replacement building for Mrachek Middle School, and building a new campus for a charter school from the DSST network.

But this year’s proposed tax request is for a mill levy override, which is ongoing local money that is collected from property taxes and has less limitations for its use.

Aurora officials are proposing to use the money, estimated to be $35 million in 2019, to expand staff and training for students’ mental health services, expanding after-school programs for elementary students, adding seat belts to school buses, and boosting pay “to recruit and retain high quality teachers.”

The estimated cost for homeowners would be $98.64 per year, or $8.22 per month, for each $100,000 of home value.

Based on previous discussions, current board members appear likely to support the recommendation.

During budget talks earlier this year, several board members said they were interested in prioritizing funding for increased mental health services. The district did allocate some money from the 2018-19 budget to expand services, described as the “most urgent,” and mostly for students with special needs, but officials had said that new dollars could be needed to do more.

The teacher pay component was written into the contract approved earlier this year between the district and the teachers union. If Aurora voters approved the tax measure, then the union and school district would reopen negotiations to redesign the way teachers are paid.

In crafting the recommendation, school district staff will explain findings from focus groups and polling. Based on polls conducted of 500 likely voters by Frederick Polls, 61 percent said in July they would favor a school tax hike.

The district’s presentation for the board will also note that outreach and polling indicate community support for teacher pay raises, student services and other items that a tax hike would fund.

School Finance

Key lawmakers urge IPS to lease Broad Ripple high school to charter school

PHOTO: Scott Elliott

Several Indiana lawmakers, including two influential state representatives, are calling on Indianapolis Public Schools leaders to sell the Broad Ripple High School campus to Purdue Polytechnic High School.

In a letter to Superintendent Lewis Ferebee and the Indianapolis Public Schools Board sent Tuesday, nine lawmakers urged the district to quickly accept a verbal offer from Purdue Polytechnic to lease the building for up to $8 million.

The letter is the latest volley in a sustained campaign from Broad Ripple residents and local leaders to pressure the district to lease or sell the desirable building to a charter school. The district is instead considering steps that could eventually allow them sell the large property on the open market.

But lawmakers said the offer from Purdue Polytechnic is more lucrative and indicated they wouldn’t support allowing the district to sell the property to other buyers.

The letter from lawmakers described selling the property to Purdue Polytechnic as a “unique opportunity to capitalize on an immediate revenue opportunity while adhering to the letter and spirit of state law.”

It’s an important development because it was signed by House Speaker Brian Bosma and chairman of the House Education Committee Bob Behning, two elected officials whose support would be essential to changing a law that requires the district to first offer the building to charter schools for $1. Both are Republicans from Indianapolis.

Last year, the district lobbied for the law to be modified, and Behning initially included language in a bill to do so. When charter schools, including Purdue Polytechnic, expressed interest in the building, he withdrew the proposal.

The district announced last month that it planned to use the Broad Ripple building for operations over the next year, which will allow it to avoid placing the building on the unused property registry that would eventually make it available to charter operators.

The plan to continue using the building inspired pointed criticism from lawmakers, who described the move in the letter as an excuse not to lease the property to a charter school. Lawmakers hinted that the plan will not help win support for changing the law.

“It certainly would not be a good faith start to any effort to persuade the General Assembly to reconsider the charter facility law,” the letter said.

The legislature goes back in session in January.

The Indianapolis Public Schools Board said in the statement that they appreciate the interest from lawmakers in the future of the building.

“We believe our constituents would not want us to circumvent a public process and bypass due diligence,” the statement continued. “We will continue to move with urgency recognizing our commitment to maximize resources for student needs and minimize burdens on taxpayers.”

Indianapolis Public Schools is currently gathering community perspectives on reusing the property and analyzing the market. The district is also planning an open process for soliciting proposals and bids for the property. The district’s proposal would stretch the sale process over about 15 months, culminating in a decision in September 2019. Purdue Polytechnic plans to open a second campus in fall 2019, and leaders are looking to nail down a location.