With the major 2011 finance bills moving briskly down the assembly line at the Minnesota Statehouse, it’s disappointing that the state’s $60 billion pension system is hardly mentioned.
Efforts at pension reform should be much further along by now. With the historic turnover in party control, an economy in crisis, unfunded pension liabilities of roughly $17 billion and private sector 401(k) nest eggs gone in a puff of smoke, pension reform should be near the top of the GOP to-do list.
But so far it’s been one step sideways and two steps back. The House and Senate have finally appointed their members to the Legislative Commission on Pensions and Retirement (LCPR). But the lateness of the appointments - with one month left in the 2011 session - means that the commission will have little time to churn out an omnibus pension bill. Certainly no reform bill will be produced this year.
As per usual the Pension Cartel has geared up its propaganda machine and the Big Three pension directors are methodically making the rounds at the Capitol, stopping by with charts and graphs and to remind legislators that they have many working and retired public employees in their districts (and implying that those public employees are dependable voters, so watch it).
Last Friday what should have been a routine passing of the gavel from the Senate to the House turned into a power play that will further stall progress. The four Democrats on the commission indicated they would throw their support behind Republican Steve Smith (R-Mound), thereby assuring that either no chair would be elected (it takes six votes) or that a compromise would be made to allow the pro-union Smith to control the commission.
You can’t blame the DFL or Smith for doing what they think is necessary. Likewise, the response from Leadership Corner should be decisive. But don’t hold your breath.
Release of the draft pension reform study on April 1 included some interesting numbers on the cost of converting the current defined benefit plans to more sustainable 401(k)-style defined contribution plans like the ones available in the private sector.
The numbers are large, but there are opportunities to minimize the fiscal impact. Republicans should push for a solution that involves zero new taxpayer dollars. Just pumping more money into the system by jacking up contribution rates is not reform, it’s a bailout. And last year’s tweaks to cost of living adjustments, accrual rates and all the rest are subject to being un-tweaked once the economy improves and the chambers change hands.
Moving new employees into a defined contribution plan sounds like reform, but it is way pricey. During the transition period lawmakers must find a way to finance taxpayers’ existing obligations to the current defined benefit plan members and – if they decide to – to also finance the newly added obligation of five percent of payroll to be appropriated to state and local employees in the new defined contribution plan.
| So essentially taxpayers would be simultaneously financing the employer’s share of two government pension plans – one slowly shrinking defined benefit plan that has a huge unfunded liability and a new plan that requires another taxpayer contribution. |
So essentially taxpayers would be simultaneously financing the employer’s share of two government pension plans – one slowly shrinking defined benefit plan that has a huge unfunded liability and a new plan that requires another taxpayer contribution. Again – whatever works, but not a nickel more in taxpayer contributions.
Increasing transparency is a major reform that could be accomplished outside of the pension commission. Public pension finance should be as much a part of the process as education finance, tax policy, health and welfare funding and all the rest of big ticket budget items. After all, state and local units of government are on the hook for $60 billion and annual financing requirements are about $2.4 billion.
But the current crop of legislative leaders appear to be content with budget business as usual. They have dutifully constructed budgets for such essential, bedrock government services as the Outdoor Heritage and Arts Legacy tax hike stuff and entitlement programs are still more or less on auto pilot.
There was hope for a few days. We can applaud Sen. Mike Parry’s leadership on SF 813, which contains major reform and would provide much needed fiscal relief for local units of government. Parry took the unprecedented step of hearing his bill in committee before it was heard by the LCPR. But the reform bill hit a brick wall in Parry’s own committee and it is a “nonstarter” in the House.
Looks like nothing substantive is likely to emerge in 2011. More than likely pension reform will be another collection of minor tweaks passed in the final hours of 2012.
Cross-posted at Politics in Minnesota