REALITY CHECK: Sen. Johnston Doubles Down on PERA Returns

UPDATE: We know Johnston is an upbeat kind of guy, but his rose colored glasses won’t help fill the empty coffers of PERA whose 10 year rate of return through 2011 is actually jut 5.7%, according to its investment release from June 2012.

Once again, Democrat lawmakers are digging in their heels regarding the unreasonable 8% assumed return on plan assets in Colorado’s Public Employee Retirement Association.  This time, Democrat State Senator Michael Johnston is taking a bite at the apple, per the Colorado Statesman:

“That [8%] number looks strong.  If you look at the four-year average rate of return… it’s around 11 ¼ percent… and the number we’d have to hit to stay solvent is 8 percent. So, even coming out of a recession we’re beating the expectations…”

Perhaps Johnston has already forgotten just five short years ago when the S&P 500 lost 37% of its value, and just several years before that, where the index took even a greater haircut during the three year period from 2000 through 2002.

According to a statement by State Treasurer Walker Stapleton, this refusal to face reality could have dire consequences for Colorado’s classrooms:

“An 8 percent expected rate of return is incredibly risky.  By 2018 school districts across Colorado will be contributing 20.15 percent of their budgets for salaries into PERA and the Denver Public Schools will be contributing 23.75 percent.  This continuous ratchet to 20.15 percent and beyond is the greatest single budgetary pressure facing school districts, and it is money that will not be going to improve student teacher ratios or technology in classrooms.  Additionally, if this 8 percent is not met, it will require extra money to be diverted out of classrooms and into PERA.  This is scary. By doing nothing to address this looming problem in his legislation Senator Johnston is doubling-down on this risky 8 percent return.”

This rate is important because in making aggressive return assumptions, PERA is forcing Colorado taxpayers to write a check that is going to be tough to clear.  By making a more reasonable assumption, similar to what California recently did, the math works out such that the reported shortfall in PERA funding will be even greater than its current $26 billion.

Eventually this bill is going to come due, and there are only a couple of ways to true up the accounts when it does:  reduce payments to plan beneficiaries (also known as WWIII), or collect even more money from Colorado taxpayers to fund teacher retirements (a more likely scenario).

Working to reform PERA and the way taxpayers fund government salaries and retirement benefits is top of mind for lawmakers on both sides of the aisle, but any efforts to make such reforms are a waste of time if lawmakers cannot look at the reality of the liability’s true size.  It is long past time for the Democrats to stop playing shell games our state employee pensions and our children’s education.

 
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