No taxpayer bailout for Colo. pensions

When President Bush and Congress first proposed a financial bailout for Wall Street investors last September, a grassroots chorus - from the Left and the Right -decried using public taxpayer funds to pay off the debts of private investors. In Colorado, the state's largest pension fund has lost 25 percent of its investment assets - $11 billion - in the past year, jeopardizing its long-term ability to pay retirement benefits promised to some 413,000 current and former government employees.

A year ago, after enjoying a 10 percent return on investment, assets of the Public Employees Retirement Association had grown to $41 billion or about 78 percent of the funds needed to pay $53 billion in promised benefits to retirees.

Now, PERA's assets have fallen to barely $30 billion. An estimate by the legislature's Joint Budget Committee pegged PERA's current funding ratio at 56.8 cents on the dollar, using 2007 liabilities. However, the actual number is undoubtedly worse given that PERA's liabilities (i.e., promised benefits) grow by more than $3 billion annually.

PERA officials, as is typically the case, aren't asking the legislature for hasty changes. While that may be wise as it applies to PERA's investment strategy (which generally exceeds its benchmarks), failure to deal with PERA's unaffordable benefit structure is irresponsible. At last, that costly reality may be inescapable, even for PERA and its apologists.

Even in a strong year like 2007 when PERA's investments grew by 10 percent, its liabilities still grew faster, adding $160 million to its funding deficit.

PERA lawyers assert that benefits can be retroactively increased (as they have been), but that once increased, those benefits can never be reduced, even for someone who has worked just one day for a PERA employer. But what if those increased benefits threaten the solvency of the fund? PERA had behaved as if that could never happen.

Worse still, PERA's party line is that the responsibility to make up for any shortfall rests with taxpayers, represented by state and local governments who contribute to PERA's pension funds on behalf of their employees.

With that in mind, it's worth explaining how PERA's retirement plan is funded.

State government, most school districts and many cities and counties deduct 8 percent from their employees' paychecks and send it to PERA, along with a 10.15 percent employer contribution and a 1.5 percent supplemental contribution (which will increase to 6 percent by 2013 to help return to full funding). That's a total contribution rate approaching 24 percent of payroll ­ compared to 12.4 percent for Social Security.

That money, more than $1.25 billion a year, is invested by PERA staff with direction from the PERA board of directors, 80 percent of whom are themselves PERA beneficiaries. Taxpayers have no meaningful input.

In short, PERA rewards its members with higher benefits when its aggressive investment strategy pays off but soaks taxpayers for a bailout when that strategy backfires.

If PERA can simply charge its losses to the taxpayers, no wonder it sees no urgency in an unfunded liability of nearly $30 billion or an unsustainable benefit structure or funding models that assume incredible rates of return for decades into the future.

That certainly sounds like using public taxpayer funds to pay off the debts of private investors. While that's a great deal for PERA members, most of whom can retire at age 55 and collect $2,658 a month, it's a lousy deal for other taxpayers on Social Security where the retirement age is 67 and the average monthly benefit is $1,089.

Because PERA won't go belly up tomorrow, the expedient course is to kick the problem down the road. When the day of reckoning finally arrives, current PERA board and staff will be long gone.

After contributing generously to fund state employees' retirement and giving those employees virtually unlimited control over their pension investments, Colorado taxpayers deserve to be freed from this heads-they-win, tails-you-lose proposition.

If PERA beneficiaries want their pension fund to invest aggressively, they should also bear the responsibility if those investments backfire.

Former State Treasurer Mark Hillman served as a member of the PERA board ofdirectors. To read more or comment, please go to www.MarkHillman.com

Overgovernment, Puppy & Kitty Dept.

You thought the nanny state had run out of ridiculous ideas? Colorado legislators are now regulating the sex lives of dogs. Never mind dealing with a projected $600 million budget shortfall. A law that just went into effect this month addresses the pressing concern of our authorities over the sex lives of dogs. That’s right, our legislature is now mandating when (and rather) dogs are spayed or neutered.

In the Speakout section of the RMN (Wednesday January 14th) Georgia Cameron spelled out from an animal rescue professional’s perspective just why this latest law is bad policy, pointing out the negative effects on animal’s health, increased administrative burden on rescuers and prospective adopters, and increased costs to nonprofits, government oversight, and therefore taxpayers at large. It’s a thoughtful, well-reasoned, and articulately argued critique of one particular legislative overreach.

I’m just here to point out how silly it is that the legislature even poked its snout – er, nose – into this whole business in the first place. And speaking of more pet-related legislative silliness…

From the same people who find it a horrendously onerous burden for presumably sentient (at least they walk upright) human beings to present identification in order to exercise the most sacred duty of citizenship: voting (ref. “Bill to require photo ID when voting fails”, RMN 23 January 2009, p. 18) comes a new demand that cats carry some form of ID (tags, implanted chips) on their –er, persons – at all times.

That’s right, like the AmEx commercials of old, kitties – don’t leave home without it. The mind’s eye conjures up legions of itinerant identity-checking inspectors wandering the streets in a scene from the old Soviet Union, marching up to cats and barking out “Propusk!” (papers). “Mrrrowr?” No ID? Well, it’s off to the kitty gulag with you, my fine furry feline friend…

Colorado Dems flunk basic econ

As Obama pledges to use taxpayer money to hand out cash and prizes in the name of jump-starting the economy, Colorado Democrats seem to be taking notes. But perhaps they should start taking a basic college economics course. Their chosen model just won't work. A quick read through the daily papers and opening day remarks by the state's leading Democrat lawmakers revealed their plans to increase government regulation and taxation, two actions all but guaranteed to worsen the state’s economic prospects.

Here’s just a quick sample of their plans. Democrats want to mandate new business regulations. Rep. Mark Ferrandino, a Denver Democrat, is introducing legislation to force banks to give loan defaulters a “temporary timeout” to renegotiate their loans. Rep. Andy Kerr of Lakewood hopes to force businesses to grant a week of unpaid leave so parents can go to school events.

The trouble with these nice sounding ideas is that they will increase government intrusion into private businesses and increase costs that are in turn be passed on to consumers.

Democrats also want to increase the size of government. Only the state’s projected $604 million budget shortfall restrains their ambitions. According to the Rocky Mountain News, a $13 billion price tag for start-up costs is the only thing stopping some Democrats from moving forward with a socialized medicine scheme.

Even so, Rep. Mary Hodge of Adams County thinks a smaller version is doable. Never mind that government takeover of healthcare is a prescription for long lines, escalating costs, deficit spending, and loss of personal freedom.

To improve education, Rep. Karen Middleton of Aurora suggests that we should increase government bureaucracy by creating an "Office of Dropout Prevention and Student Reengagement." State Rep. Debbie Benefield of Arvada wants the government to guarantee every student has access to a high-quality teacher. I’m guessing parental choice isn’t what she has in mind rather the creation of yet another government teacher training program or teacher salary initiative. On the welfare front, legislation is poised to create an “Economic Opportunity Task Force” (at least it’s not a blue ribbon panel) to develop a “strategic, integrated and comprehensive plan to help lift families out of poverty.”

Bear in mind that every dollar spent on state bureaucracy is one not spent by entrepreneurs to create jobs, charitable organizations to provide real help, or individuals to invest in their own future.

Democrats think they can create jobs, stimulate growth, and generate prosperity through the creation of more government programs, hand-outs, and regulations. Unfortunately, they missed the lessons of the 20th Century, subtle as they were, like the Great Depression, 70's stagflation, and the collapse of centrally planned economies.

“There are severe limits to the good that the government can do for the economy, but there are almost no limits to the harm it can do,” observed Nobel laureate economist Milton Friedman. The direction sought by the majority party this legislative session points to darker days ahead.

Krista Kafer is a Denver-based education consultant, frequent cohost on Backbone Radio, and regular columnist for Face the State.com, from which this is reprinted by permission.

Nanny state has you covered

The Lofgren Family Carbon Monoxide Safety Act, now pending before the Colorado House, has emotional power because of the four Lofgrens' recent death in a borrowed house in Aspen. Of course we feel for their loss and wish to prevent similar occurrences in the future. Monoxide killed some friends of mine in their mountain condo years ago, and almost killed my wife's family when she was a child. We have monoxide detectors in our house. But I still say no to this mandatory detector bill for newly built homes or older ones being resold. If you legislate by anecdote, the lawbooks will soon overflow as liberty and personal responsibility are smothered with nannyism. If the bill addressed public accommodations such as hotels, and left private homeowners to make their own safety provisions, I might be receptive. But it does just the opposite, as today's Post reports.

This is the same mentality that had Gov. Bill Ritter saying in his State of the State last week, "We'll be introducing legislation with Representative Merrifield and Senator Carroll requiring that all new single-family homes come with a "solar-ready" option. Today, homebuyers already have choices when it comes to countertops, paint colors and flooring. People should have similar options when it comes to sustainability."

Another example is Sen.-designate Bennet saying "we have an opportunity to reinvent" the auto industry, where "we" means Congress -- as noted by Vince Carroll in the Rocky today.

Be it safety or energy, the liberals will always find an excuse to inject government coercion between freely choosing buyers and sellers. Uncle Sam becomes Mr. Mom and we're all children on the apron strings.

Budget test finds Ritter wanting

Colorado faces a $630 million budget shortfall and stark options now that half the fiscal year is past and so much money is already spent. Balancing a budget during a recession is a difficult, thankless job. But balancing this year's budget didn't need to be this hard if only the leaders at the Capitol had learned from the last recession - or listened to those who experienced it.

Last spring as the economic storm clouds gathered, Gov. Bill Ritter and legislative leaders had opportunities to take precautions.

One worthwhile precaution was proposed by Treasurer Cary Kennedy, my erstwhile political foe, and then-Rep. Bernie Buescher. At a time when revenues under Referendum C were surging, their proposal reasonably sought to double the state's reserve fund by saving, rather than spending, some $250 million.

After all, everyone who experienced the austere budgets of 2001-2003 agreed that the state needed a "rainy day fund."

Unfortunately, that proposal died on the altar of the spending lobby.

Then as lawmakers debated the state budget, headlines warned of a looming recession forecast by Federal Reserve chairman Ben Bernanke. Again, prudence dictated that leaders put the brakes on spending money that might never materialize.

Unfortunately, legislators passed and Gov. Ritter signed a budget that spent every "available" dime, making promises that now cannot be kept.

Even more remarkable than the legislature's habitual failure to save is the day-late-and-dollar-short response of Gov. Ritter and his budget office. Upon signing the full-throttle state budget, Ritter said: "This is a budget we should celebrate. This is a budget that is smart, fiscally responsible and effective."

In September, when the legislature's economists sounded warnings about an economic downturn and a budget deficit, Ritter's Office of State Planning and Budget kept whistling a happy tune.

"One of (the forecasts) is pretty significantly wrong," Ritter told the Denver Post, which noted that Ritter "made it clear" that his forecast wasn't wrong.

Ironically, President Bush apparently changed Ritter's mind a few days later by remarking in a televised speech, "the entire economy is in danger." Ritter responded by putting a partial freeze on hiring and new construction and asking his department heads to "identify other money-saving ideas and strategies."

In November, the governor unveiled his budget for the fiscal year starting next July. He called for growing the budget at only 5 percent and setting aside "an unprecedented $77 million" in a new reserve fund.

Again, this was too little, too late.

His "unprecedented" proposal was just one-fourth the size of the earlier Kennedy-Buescher plan ‹ which received no support from Ritter.

The hypocrisy, as surely even Ritter knows, is that the time to save is when revenues are growing - not when they're already in retreat. That's because when revenues are increasing, saving requires simply setting aside a portion of the increase. But when revenues are declining, every dollar saved must be cut from existing programs.

In December, the legislature's economists sounded a full-throated alarm, projecting a $631 million deficit for 2008-09 and revenue growth at less than 1% for next year. This time, Ritter & Co. issued mixed messages.

Ritter said, "We're experiencing a historic and a global economic crisis." But his budget office forecast a mere $70 million deficit.

Two weeks later, Ritter's budget office asked for a mulligan, telling the Post it had "used outdated information" and now forecast a $230 million deficit - still barely one-third that projected by the legislature's economists.

Ritter's budget data isn't the only thing that's outdated. His fiscal strategies amount to closing the barn door after the horses have already left.

It's not as if Ritter is the first governor to experience these challenges. Just seven years ago in the wake of 9/11 and the tech bubble burst, Colorado lawmakers faced similar challenges.

Unfortunately, it seems the only lesson learned by Ritter is to ask taxpayers for more money to spend - but never to save for the next rainy day.

Don't look now, Governor, but it's raining again.

Mark Hillman served as Senate Majority Leader and State Treasurer. To read more or comment, go to www.MarkHillman.com.