On Politics: Road maps to pension reform
You’re enjoying a leisurely morning, sipping coffee in your comfortable Tahoe home, reading the Bonanza. You scan an opinion column citing a quote from an editorial in the Las Vegas Review Journal reading: “Nevada lawmakers must reform the state’s generous government pension program before it overwhelms taxpayers.”
Well, you think, that can’t mean me. But it does. An unholy combination of unrealistic accounting, skirting of state law by public employee unions, and a veil of semi-secrecy imposed by a board of self-interested pension beneficiaries poses a clear and present danger to Nevada taxpayers, particularly homeowners.
And the fix will require legislators with the courage to tackle powerful government employees’ unions, who contribute generously to politicians.
Present and future pension liabilities of Nevada’s Public Employees’ Retirement System (“PERS”) are funded by state and local governments. State law requires that at least a 50 percent of that funding come from employees’ payroll deductions but, at the local government level (county, city, school district), employee unions often collectively bargain for the employing agency to pick up the whole tab.
Nevada Policy Research Institute (“NPRI”) reports that this $1.5 billion annual contribution is the second highest of any state in the nation. It is extracted from Nevada taxpayers by cities, counties, school districts, and the state. But it’s not enough.
That chunk of money goes into a pool, which is first used to pay current retirees and the remainder invested. Liabilities for future pension payments can be calculated pretty accurately since they are based on known data. Funding to meet those liabilities is more problematic. Its source will be future contributions, plus investment earnings on the pool of money. As Hamlet said: “Ay, there’s the rub.”
It’s the PERS board that estimates the rate of earnings. They say 8 percent. But according to the Review Journal “returns over the past decade have averaged only 6.3 percent and the state system paid out $300 million more than it collected last year. In addition accounting rules for public pensions allow for a certain amount of gimmickry that is unheard of in the private sector, leading to rosy projections and assumptions that distort reality but satisfy certain political objectives” the Review Journal reported.
NPRI’s Bob Fellner wrote in an Oct. 19 press release: “Years of relying on flawed accounting metrics designed to understate (PERS’) true cost have left today’s public workers and taxpayers holding the bag. This means that new Nevada teachers will have to pay some of the highest rates in the country to PERS in order to help fund the much richer benefits their veteran counterparts are, or will be, receiving.”
Hmmm. So Nevada taxpayers will have to pay more to cities, counties and school districts because newly hired teachers and other public employees will have to pay more into the system to fund the fat cats’ pensions. And this is getting worse to the tune of about $300 million per year.
Both Arizona and Utah have saved their systems with reforms. The problem is that any time legislators even look at pension reform it turns into a civil war pitting taxpayers and employers on one side, and employees and labor unions on the other side. Arizona engaged the Reason Foundation, a libertarian think tank, to educate the parties and the public. They engaged an influential state senator, who forged bipartisan support to fix the system.
An influential state senator also spearheaded Utah’s solution. Their pension fund took a 22 percent hit in the 2008 downturn and was facing bankruptcy. Negotiation and compromise affected the fix. The American Legislative Exchange Council published the Utah experience in “Keeping the Promise: State Solutions for Government Pension Reform.”
Nevada? Still to be determined, but the road maps are out there.
Jim Clark is president of Republican Advocates. He has served on the Washoe County and Nevada GOP Central Committees. He can be reached at firstname.lastname@example.org